If Samantha predicts future inflation based on rational expectations, then
A) she uses all relevant information to forecast inflation.
B) she never under estimates inflation.
C) she looks only to the past to help her predict future inflation.
D) her forecast of inflation will always be correct.

Question

Quizplus · Accepted Answer

Rational expectations theory suggests that individuals use all available information, including historical data and current economic conditions, to form their expectations of future inflation. Therefore, Samantha would use all relevant information to forecast inflation instead of relying solely on past data. However, it does not guarantee that her forecast will always be correct as unexpected events can affect the inflation rate.

If Samantha Predicts Future Inflation Based on Rational Expectations, Then