Under rational expectations,
A)people use all the information at their disposal to make their best forecast of the coming rate of inflation.
B)people use all past rates of inflation to make their best forecast of the coming rate of inflation.
C)people use announcements by the Fed to make their best forecast of the coming rate of inflation.
D)people use only the Fed's inflation target to make their best forecast of the coming rate of inflation.
E)people use the unemployment rate to make their best forecast of the coming rate of inflation.

Question

Quizplus · Accepted Answer

Rational expectations theory assumes that individuals know all information relevant to their economic decisions and are able to use this information to make optimal choices. In this context, people would use all information available to them to make their best forecast of the coming rate of inflation. Therefore, choice A is the most accurate option.

Under Rational Expectations