A rational expectation of inflation is
A) how economists make perfect forecasts of inflation.
B) how unexpected inflation affects the economy.
C) why unexpected inflation redistributes income.
D) a forecast of inflation that uses all relevant information.

Question

Quizplus · Accepted Answer

Rational expectations theory posits that individuals and firms use all available information in forecasting future economic variables such as inflation. This means their forecasts are the best guess of the future using all the information currently available, rather than being perfect predictions.

A Rational Expectation of Inflation Is