The assumption of rational expectations for inflation means that people will form their expectations of inflation by:
A) optimally using all available information, including information about current policies, to forecast the future.
B) asking the opinions of the best experts.
C) subscribing to the forecasting service that uses the best econometric model.
D) basing their opinions on recently observed inflation.

Question

Quizplus · Accepted Answer

The assumption of rational expectations for inflation assumes that people will form their expectations of inflation by optimally using all available information, including information about current policies, to forecast the future. This means that individuals will take into account all available information, including economic data and policy decisions, to make their predictions about future inflation rates. This assumption suggests that individuals will not rely on recently observed inflation or the opinions of experts or forecasters.

The Assumption of Rational Expectations for Inflation Means That People