A mainstream criticism of the rational expectations theory is that:
A) The theorists confuse correlation with causation in interpreting the empirical evidence
B) People do not make consistent forecasting errors which can be exploited by policy makers
C) Many markets are not purely competitive and do not adjust rapidly to changing market conditions
D) The data indicate that economic policy does not affect real GDP and employment

Question

Quizplus · Accepted Answer

The mainstream criticism of the rational expectations theory is that many markets are not purely competitive and do not adjust rapidly to changing market conditions. This is because the theory assumes that all market participants have access to the same information and make rational decisions based on that information, which may not always be realistic in non-competitive markets.

A Mainstream Criticism of the Rational Expectations Theory Is That