According to rational expectations
A)expectations of inflation are viewed as being an average of past inflation rates.
B)expectations of inflation are viewed as being an average of expected future inflation rates.
C)expectations formation indicates that changes in expectations occur slowly over time as past data change.
D)expectations will not differ from optimal forecasts using all available information.

Question

Quizplus · Accepted Answer

Rational expectations theory suggests that individuals make decisions based on all available information, including past and current data. Therefore, expectations will not differ from the optimal forecast using all available information. This means that individuals' expectations of future events such as inflation will be based on their assessment of all available information rather than being biased towards the past or the future.

According to Rational Expectations