According to the rational expectations hypothesis, the occurrence of unemployment is due to
A) imperfect information.
B) unpredictable shocks.
C) downwardly rigid wages.
D) a deficient level of aggregate demand.

Question

Quizplus · Accepted Answer

The rational expectations hypothesis states that individuals make decisions based on all available information, including expectations about future economic conditions. Therefore, if shocks to the economy are unpredictable, such as sudden changes in consumer preferences or technological advancements, then unemployment may occur despite rational decision-making by individuals.

According to the Rational Expectations Hypothesis, the Occurrence of Unemployment