Which of these is(are) true regarding the rational expectations theory? I. In general, studies support the policy ineffectiveness proposition.
II) Labor markets are often exhibit short-term wage stickiness.
III) It does not make the best use of all publicly available information.

Question

Quizplus · Accepted Answer

Rational expectations theory assumes that individuals use all available information efficiently, contradicting statement III. While it suggests policy ineffectiveness, empirical support is mixed, making statement I not universally true. Statement II is true as labor markets often show short-term wage stickiness.

Which of These Is(are) True Regarding the Rational Expectations Theory