The Theory of Rational Expectations Is CONSISTENT with Which of the Following

question 206

Multiple Choice

The theory of rational expectations is CONSISTENT with which of the following statements?

• A)It takes into account only current information about inflation.
• B)It takes into account only past information about inflation.
• C)It takes into account past rates of inflation and available information about monetary and fiscal policy.
• D)A government attempt to trade off higher inflation for lower unemployment would work in the short run but would eventually fail because higher inflation would get built into expectations.

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