Proponents of the theory of rational expectations contend that:
A) people make rational forecasts using all existing information.
B) business cycles are generally caused by shifts in aggregate demand.
C) full employment is rarely achieved.
D) stickiness of prices is the primary cause of inflation.

Question

Quizplus · Accepted Answer

Proponents of the theory of rational expectations believe that individuals have all available information and use that information to make rational forecasts. This theory suggests that individuals make decisions based on expectations about the future, and these decisions can ultimately impact the economy.

Proponents of the Theory of Rational Expectations Contend That