When individuals and firms base their expectations on the best use of whatever information is available,they conform to the theory of ________ expectations.
A) great
B) passive
C) limited
D) systematic
E) rational

Question

Quizplus · Accepted Answer

Rational expectations theory assumes that individuals and firms base their expectations on all available information, including past experiences, current economic conditions, and expectations of future events. This theory suggests that people are forward-looking and adjust their expectations as new information becomes available. Therefore, rational expectations are considered the most accurate predictor of future economic trends.

When Individuals and Firms Base Their Expectations on the Best