Under rational expectations, people use ________ to make their best forecasts of the coming rate of inflation.
A) all the information at their disposal
B) all past rates of inflation
C) announcements by the Fed
D) only the Fed's inflation target
E) the unemployment rate

Question

Quizplus · Accepted Answer

Rational expectations theory assumes that individuals use all the available information to make their best forecasts. Therefore, people under rational expectations will use all the information at their disposal to make their forecasts of the coming rate of inflation. They will not rely solely on past rates of inflation or announcements by the Fed, but rather consider all relevant economic data, such as unemployment rates, GDP growth, and fiscal policy.

Under Rational Expectations, People Use ________ to Make Their Best