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

Question

Quizplus · Accepted Answer

Rational expectations theory suggests that individuals use all available information, including historical data and indicators of future economic conditions, to make forecasts about future events such as inflation. This means they incorporate both past trends and expectations about future policy or economic changes into their predictions.

If Samantha Predicts Future Inflation Based on Rational Expectations, Then