According to the rational expectations theory
A) the public makes consistent errors when forming expectations.
B) only central bankers form expectations rationally.
C) the public, on average, anticipates the future correctly.
D) the public only uses a portion of the available information when forming expectations.

Question

Quizplus · Accepted Answer

The rational expectations theory assumes that individuals use all available information to form their expectations of the future, resulting in accurate predictions on average. Therefore, the public, on average, anticipates the future correctly. Choices A, B, and D are all inconsistent with the theory.

According to the Rational Expectations Theory