According to the rational expectations hypothesis, unpredictable shocks explain the existence of
A) the federal deficit.
B) unemployment.
C) the national debt.
D) trade barriers.

Question

Quizplus · Accepted Answer

According to the rational expectations hypothesis, individuals form their expectations about future economic conditions based on all available information, including past events and current policies. Therefore, unpredictable shocks, such as changes in technology, natural disasters, or sudden shifts in consumer preferences, can lead to unexpected changes in economic conditions, which may in turn lead to fluctuations in employment levels. So, rational expectations can explain the existence of unemployment.

According to the Rational Expectations Hypothesis, Unpredictable Shocks Explain the Existence