When all relevant information is used to forecast inflation, the resulting forecast is called
A) a rational expectation.
B) an expected forecast.
C) a natural expectation.
D) an expansionary expectation.
E) the expected expectation.

Question

Quizplus · Accepted Answer

Rational expectations use all available information to make predictions about future events, in this case, inflation. It assumes that individuals and firms make their economic decisions based on all the available information, including past and current economic data, and the expected impact of government policies. Therefore, a forecast that utilizes all relevant information is known as a rational expectation.

When All Relevant Information Is Used to Forecast Inflation, the Resulting