The rational expectations hypothesis is a theory that states that
A) individuals can predict the future perfectly, at least with respect to macroeconomic variables like the interest rate and inflation.
B) people make their economic plans by using all available past and present information and their understanding about how the economy operates.
C) people make their economic plans in an irrational, intuitive manner.
D) people make their economic plans by relying on the policy statements made by the President and by leaders in Congress.

Question

Quizplus · Accepted Answer

The rational expectations hypothesis suggests that individuals make their economic plans by incorporating all available information, including past and present data, as well as their understanding of how the economy works. This means that people make their plans in a rational and informed manner, rather than relying on intuition or policy statements from leaders. However, it does not suggest that individuals can predict the future perfectly.

The Rational Expectations Hypothesis Is a Theory That States That