Suppose now agents have rational expectations. Rational expectation implies that (A) in every period agents expect the previous period's actual value to prevail (B) in every period agents adjust their expected value by a constant positive fraction of the previous period's expectational error (C) in every period agents use all available information, so the expected value differs from the actual only if a stochastic element is present (D) none of the above

DSE 2015 Question 18: Business cycles and rational expectations

Suppose now agents have rational expectations. Rational expectation implies that

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Business cycles and rational expectations has come up 21 times in 5 exams since 2010.

This question is on Rational expectations and the Lucas critique, part of Business cycles and rational expectations in Macroeconomics.

How expectations formed with all available information change what policy can do.

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