Which of the following are implications of rational expectations?

Question

Quizplus · Accepted Answer

Rational expectations theory suggests that market participants adjust their expectations based on new information that becomes available. This implies both option A. Additionally, if there is a change in the way a variable moves, such as a change in the policy regime, the way that expectations of the variable formed will also change, which supports option C. Therefore, both option A and option C are correct implications of rational expectations. Option B, on the other hand, suggests a specific weighting scheme (recent years receiving more weight), which is not a necessary implication of rational expectations theory.

Which of the Following Are Implications of Rational Expectations