If expectations are rational,
A)a predictable change in inflation can make the expected inflation rate deviate from the actual rate.
B)unemployment can exceed the full-employment rate even in the long run.
C)the difference between the actual inflation rate and the expected inflation rate must be a purely random number.
D)the inflation rate cannot be reduced without a period of high unemployment because the Phillips curve is downward sloping.

Question

Quizplus · Accepted Answer

Rational expectations imply that on average, people correctly anticipate inflation rates, meaning any difference between actual and expected inflation rates would be random and not systematically predictable.

If Expectations Are Rational