If inflationary expectations are based on all available information, they are referred to as
A) optimal.
B) rational.
C) adaptive.
D) informed.

Question

Quizplus · Accepted Answer

Rational expectations theory suggests that people make use of all available information and make rational predictions about what will happen in the future. Inflationary expectations that are based on all available information are consistent with the assumptions of rational expectations theory. Therefore, option B) is the best choice.

If Inflationary Expectations Are Based on All Available Information, They