Rational expectations involve:
A)forecasts that are technically correct.
B)forecasts that, while not necessarily correct, are the best that can be made given the available data.
C)forecasts that accurately predict the short-term future for wages and prices.
D)forecasts made by economists based on sophisticated econometric models.

Question

Rational expectations involve:
A)​forecasts that are technically correct.
B)​forecasts that, while not necessarily correct, are the best that can be made given the available data.
C)​forecasts that accurately predict the short-term future for wages and prices.
D)​forecasts made by economists based on sophisticated econometric models.

Quizplus · Accepted Answer

Rational expectations involve forecasts that are based on all available information and make the best possible use of available resources, but they are not necessarily completely accurate or technically correct. Rational expectations theory suggests that individuals and firms will use all available information to make informed decisions about future economic events, and prices and quantities will adjust accordingly.

Rational Expectations Involve