When market participants have rational expectations

a. they only slowly adjust their expectations to news which could affect prices or returns.

b. they are less likely to make accurate forecasts than if they have adaptive expectations.

c. they use all information available to them.

d. they are able to forecast interest rates more accurately than inflation rates.

Question

Business

Xzavier Mckinney

22 May, 12:39

When market participants have rational expectations

a. they only slowly adjust their expectations to news which could affect prices or returns.

b. they are less likely to make accurate forecasts than if they have adaptive expectations.

c. they use all information available to them.

d. they are able to forecast interest rates more accurately than inflation rates.

+3

Answers (2)

Know the Answer?

Julio Valenzuela · Answer 1

The correct answer is letter "C": they use all information available to them.

Explanation:

The Rational Expectations Theory is mainly used in macroeconomics with the idea that individuals' decisions will affect the course of the economy in the future. According to this theory, individuals' decisions are based on rationality, all the information available to them, and past experiences.

Some of the assumptions of the Rational Expectations Theory are that people hold expectations that are likely fulfilled, values of variables (price, production, and employment) are taking into account, and individual always look for maximizing their profits.

Sheldon Huffman · Answer 2

they use all information available to them, and the information they use not only contains past experiences, but also their expectations for the future