A rational expectation of inflation is
A) why unexpected inflation redistributes income.
B) how economists make perfect forecasts of inflation.
C) how unexpected inflation affects the economy.
D) a forecast of inflation that uses all relevant information.

Question

Quizplus · Accepted Answer

A rational expectation of inflation is a forecast of inflation that uses all relevant information. It assumes that individuals form expectations based on all available information, including past inflation rates, current economic conditions, and future policy actions. It is a key concept in macroeconomics as it helps in understanding how individuals make decisions and how policy actions affect the economy. It does not directly address how unexpected inflation redistributes income or how it affects the economy.

A Rational Expectation of Inflation Is