According to the rational expectations theory, if all firms have rational expectations and wages and prices are flexible, disequilibrium in a market
A) will never exist.
B) will only exist in times of high inflation.
C) will only be temporary.
D) will be a common occurrence.

Question

Quizplus · Accepted Answer

According to the rational expectations theory, if all firms have rational expectations and wages and prices are flexible, disequilibrium in a market will only be temporary. This is because any market disturbances or shocks will be anticipated by firms and will result in them adjusting their prices and production levels accordingly in order to restore equilibrium.

According to the Rational Expectations Theory, If All Firms Have