If Samantha predicts future inflation based on rational expectations, then
A) she never under estimates inflation.
B) she looks only to the past to help her predict future inflation.
C) she uses all relevant information to forecast inflation.
D) her forecast of inflation will always be correct.

Question

Quizplus · Accepted Answer

Rational expectations theory suggests that economic agents use all available information, including past and present economic data, as well as their own understanding of economic principles and policy actions, to form their expectations for future inflation. Therefore, Samantha, if she predicts future inflation based on rational expectations, would also use all relevant information to forecast inflation. However, even with all available information, it is impossible to always make correct predictions about future inflation.

If Samantha Predicts Future Inflation Based on Rational Expectations, Then