The primary argument against the rational-expectations assumption is that
A) the costs of formulating rational expectations are very low.
B) it requires households and firms to know too much.
C) it assumes that unexploited opportunities for profit persist in the economy.
D) people expect certain outcomes from the government's policy actions.

Question

Quizplus · Accepted Answer

The rational-expectations assumption requires individuals and firms to possess perfect information and knowledge which is often unrealistic in the real world. This argument is commonly made by critics of the rational-expectations theory.

The Primary Argument Against the Rational-Expectations Assumption Is That