One of the basic assumptions of rational expectations theory is that:
A) People can anticipate the future effects of policy changes and the actions they take may offset the effects of economic policy
B) People are not able to assess the future effects of policy changes, so government can use economic policy effectively
C) Markets are not very competitive and fail to adjust very quickly to changes in demand and supply
D) People expect government to solve the major unemployment and inflation problems facing the nation and behave accordingly

Question

Quizplus · Accepted Answer

Rational expectations theory assumes that people are able to anticipate the future effects of policy changes and adjust their behavior accordingly. This means that government policies may not have the intended effect, as individuals will take actions to offset the effects of economic policy.

One of the Basic Assumptions of Rational Expectations Theory Is