The rational expectations hypothesis is a theory that states that
A)individuals can predict the future perfectly,at least with respect to macroeconomic variables like the interest rate and inflation.
B)people make their economic plans by using all available past and present information and their understanding about how the economy operates.
C)people make their economic plans in an irrational,intuitive manner.
D)people make their economic plans by relying on the policy statements made by the Prime Minister and leaders in Parliament.

Question

Quizplus · Accepted Answer

The rational expectations hypothesis states that people form their expectations about future economic variables by using all available past and present information, and their understanding of how the economy operates. It does not assume that individuals can predict the future perfectly, nor that they make their economic plans in an irrational or intuitive manner. It also does not rely on the policy statements made by political leaders.

The Rational Expectations Hypothesis Is a Theory That States That