The rational expectations hypothesis states that

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The rational expectations hypothesis is based on the assumption that economic agents incorporate all relevant information, including past and present economic information, into their decision-making process. This suggests that their expectations about future economic conditions are rational and accurate, based on all available information. It does not necessarily imply that individuals always behave rationally or that prices do not adjust in a downward direction. It also assumes that consumers have an understanding of the effects of monetary and fiscal policy.

The Rational Expectations Hypothesis States That