According to the rational expectations hypothesis, unemployment
A) does not exist in the short run.
B) may exist, and when it does, it stays for a long period of time.
C) may exist, and if it does, it will be temporary.
D) only exists in the long run.

Question

Quizplus · Accepted Answer

The rational expectations hypothesis suggests that individuals will form expectations about economic variables, such as unemployment, based on all available information. As a result, if unemployment does exist, it may only be temporary as individuals will adjust their behavior and expectations accordingly. Therefore, the best choice is C as it aligns with the notion that temporary unemployment is possible under rational expectations.

According to the Rational Expectations Hypothesis, Unemployment