In the rational expectations theory concerning interest rates business and household decision-makers are assumed to be:
A) Risk neutral
B) Rational agents
C) Speculators
D) Risk minimizers
E) None of the above

Question

Quizplus · Accepted Answer

Rational expectations theory posits that individuals and businesses make decisions optimally based on all available information, hence they are considered rational agents. This means they form expectations about the future that are the best guess possible given the information available, including how they believe interest rates will change.

In the Rational Expectations Theory Concerning Interest Rates Business and Household