People are said to have rational expectations if they ?
Correct answer: D. Use all available information in forming their expectations.
- A. assume that this year's inflation rate will be the same as last year's inflation rate
- B. merely guess at the inflation rate.
- C. assume that this year's inflation rate will be equal to the average inflation rate over the past 10 years
- D. Use all available information in forming their expectations.
Explanation
Rational expectations are formed by using all relevant available information, including current policies and economic conditions. Simply copying last year’s inflation or using a historical average describes backward-looking expectations instead.
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