Which of the following would be a violation of the rational expectations assumption?
A)"Over the past twenty years, people have consistently under-predicted the inflation rate for the following year."
B)"Over the past twenty years, people have never once accurately predicted the inflation rate for the following year."
C)"The Fed's announcement that it might ease interest rates caused an immediate drop in short-term rates, even before the Fed took any action."
D)all of the above
E) none of the above

Question

Quizplus · Accepted Answer

The rational expectations assumption posits that individuals form forecasts about the future based on all available information, including the patterns and outcomes of the past. If people consistently under-predict the inflation rate, it suggests they are not accurately using historical data and trends to inform their expectations, thus violating the rational expectations assumption.

Which of the Following Would Be a Violation of the Rational