Any test of the rational expectations hypothesis must show that expectations are formed rationally and
A) the model being used is the true model.
B) the velocity of money is constant.
C) there are no price surprises.
D) all policy changes are anticipated.

Question

Quizplus · Accepted Answer

The rational expectations hypothesis requires that the model being used accurately reflects the true model of the economy, as it assumes that individuals form expectations based on a correct understanding of the economic model and all available information.

Any Test of the Rational Expectations Hypothesis Must Show That