Rational expectations of inflation prevail when people
A) ignore the fact that inflation can change.
B) assume that future inflation will be like recent past inflation.
C) feel that inflation is rational.
D) use all the information they have as best they can.

Question

Quizplus · Accepted Answer

Rational expectations theory posits that individuals form forecasts about the future based on all available information, including the understanding that economic conditions can change. This means they use their knowledge and data as effectively as possible to predict future inflation, rather than relying solely on past trends or ignoring potential changes.

Rational Expectations of Inflation Prevail When People