According to the rational expectations theory, people base their expectations about inflation on _____
A) the announcement of a change in policy.
B) weighted averages of previous inflation rates, with the most distant getting the heaviest weight.
C) all information available to them.
D) changes in monetary policy only.
E) changes in both monetary and fiscal policy.

Question

Quizplus · Accepted Answer

According to the rational expectations theory, people base their expectations on all information available to them, including past inflation rates, the current macroeconomic environment, and any announcements or changes in policy. This theory suggests that individuals are rational and forward-looking, and they use all available information to form their expectations about future economic conditions.

According to the Rational Expectations Theory, People Base Their Expectations