The belief that individuals and firms make their decisions optimally using all available information:
A)is an assumption made by Keynesian economists.
B)is referred to as rational expectations.
C)leads to the conclusion by some new classical economists that discretionary policies work best.
D)is known as the real business cycle.

Question

Quizplus · Accepted Answer

The belief that individuals and firms make their decisions optimally using all available information is referred to as rational expectations. It is a key concept in new classical economics and is based on the assumption that economic agents are rational and forward-looking. This has important implications for the effectiveness of monetary and fiscal policy, as it suggests that any attempt to manipulate the economy through discretionary policy is likely to be ineffective or even counterproductive.

The Belief That Individuals and Firms Make Their Decisions Optimally