Critics of the rational expectations theory believe that:
A)most people are well informed about the effects of a policy change.
B)most people adjust their behavior very rapidly to changes in government policies even if they are not informed about the effects of policy changes.
C)wages and prices are not as flexible as the rational expectations theory assumes.
D)expected changes affect real output and employment in the long run.
E)unexpected changes in policies do not affect real output and employment in the short run as the rational expectations theory assumes.

Question

Quizplus · Accepted Answer

Critics argue that the rational expectations theory overestimates the flexibility of wages and prices, suggesting that these do not adjust as quickly or as easily as the theory assumes, leading to potential discrepancies in its predictions and real-world outcomes.

Critics of the Rational Expectations Theory Believe That