Which of the following statements about expectations theory is true?
A) Adaptive expectations theory implies that people form expectations on the basis of all available information.
B) Rational expectations theory implies that people's expectations of future inflation are based on their most recent experiences.
C) Rational expectations theory does not imply that people always predict inflation correctly.
D) Adaptive expectations theory identifies prediction errors as random.
E) Rational expectations theory was developed before adaptive expectations theory.

Question

Quizplus · Accepted Answer

Rational expectations theory suggests that people use all available information to make predictions, but it does not guarantee that these predictions will always be correct.

Which of the Following Statements About Expectations Theory Is True