Rational expectations theory is based on the assumption that:
A) wages and prices are flexible upward but inflexible downward.
B) both product and resource markets are very competitive.
C) product markets are competitive,but resource markets are monopolistic.
D) both product and resource markets are monopolistic.

Question

Quizplus · Accepted Answer

Rational expectations theory assumes that both product and resource markets are very competitive, which means that prices and wages are determined by market forces and not by individual actions. This assumption is important in the theory's prediction of how individuals and firms behave in response to changes in economic policy or conditions.

Rational Expectations Theory Is Based on the Assumption That