The rational expectations hypothesis implies that when macroeconomic policy changes
A)the economy will become highly unstable.
B)the way expectations are formed will change.
C)people will be slow to catch on to the change.
D)people will make systematic mistakes.

Question

Quizplus · Accepted Answer

The rational expectations hypothesis suggests that people base their expectations of future events on all available information, including any changes in macroeconomic policy. Therefore, if there is a change in policy, people will adjust their expectations accordingly, rather than making systematic mistakes or being slow to catch on to the change.

The Rational Expectations Hypothesis Implies That When Macroeconomic Policy Changes