The rational expectations approach
A) insists that all available information is efficiently used to form expectations
B) concludes that rational people never react to an unexpected change in monetary policy
C) concludes that price predictions are based solely on the behavior of nominal wages
D) agrees with the frictionless neoclassical model that there is never any deviation from the full-employment level of output
E) assumes that all markets immediately clear except for the labor market since wages tend to adjust slowly

Question

The rational expectations approach
A)	insists that all available information is efficiently used to form expectations
B)	concludes that rational people never react to an unexpected change in monetary policy 
C)	concludes that price predictions are based solely on the behavior of nominal wages
D) 	agrees with the frictionless neoclassical model that there is never any deviation from the full-employment level of output
E)  	assumes that all markets immediately clear except for the labor market since wages tend to adjust slowly

Quizplus · Accepted Answer

The rational expectations approach assumes that individuals use all available information to form their expectations, leading to efficient use of information.

The Rational Expectations Approach