Rational expectations theory assumes that both product and resource markets are competitive and
that wages and prices are ﬂexible.

Question

Quizplus · Accepted Answer

Rational expectations theory assumes that both product and resource markets are competitive, which implies that wages and prices are flexible in response to changes in supply and demand. This allows the economy to adjust to changes in technology, government policies, and other factors without causing persistent inflation or unemployment.

Rational Expectations Theory Assumes That Both Product and Resource Markets