Which of the following is NOT consistent with the rational expectations hypothesis?
A) Individuals use past information in forecasting future values.
B) Individuals use current information in forecasting future values.
C) Expectations incorporate an individual's understanding about how the economy operates.
D) Expectations are based on an assumption that the near future will simply repeat or continue the current situation.

Question

Quizplus · Accepted Answer

The rational expectations hypothesis suggests that individuals form their expectations about the future based on all available information, including how they understand the economy operates, rather than simply assuming that the future will mirror the present. This means that while past and current information, as well as an understanding of economic mechanisms, are used to inform expectations (consistent with A, B, and C), assuming the future will just continue the current situation without incorporating available information and understanding (D) does not align with the rational expectations hypothesis.

Which of the Following Is NOT Consistent with the Rational