The theory of interest which assumes that the money and capital markets are highly efficient social institutions in digesting and reacting to new information is known as:
A) Rational Expectations
B) Classical Theory
C) Liquidity Preference
D) Loanable Funds
E) None of the above

Question

Quizplus · Accepted Answer

Rational Expectations theory posits that individuals and institutions make decisions optimally based on all available information, including how they expect others to behave and future policy actions. This theory implies that markets are efficient in processing information, which aligns with the description given.

The Theory of Interest Which Assumes That the Money and Capital