The rational expectations theory suggests that to be a consistently correct interest-rate forecaster you must know what market participants expect to happen and:
A) Which way interest rates have gone in the recent past
B) What new information will arrive in the market before that information actually arrives
C) How much value the marketplace currently places on new information
D) What reasonably could happen to market interest rates given their performance to date
E) None of the above are correct

Question

Quizplus · Accepted Answer

Rational expectations theory posits that individuals make decisions based on their rational outlook, available information, and past experiences. Therefore, to forecast interest rates accurately under this theory, one must anticipate new information before it becomes public, as this information will influence market expectations and, consequently, interest rates.

The Rational Expectations Theory Suggests That to Be a Consistently