Rational expectations forecast errors will on average be ________ and therefore ________ be predicted ahead of time.
A) positive; can
B) positive; cannot
C) negative; can
D) zero; cannot

Question

Quizplus · Accepted Answer

Rational expectations forecast errors are based on all available information and are unbiased, therefore on average they will be zero. Because they are based on all available information, they cannot be predicted ahead of time as they reflect unexpected events or changes in the environment.

Rational Expectations Forecast Errors Will on Average Be ________ and Therefore