What is the rational expectations hypothesis? The actual unemployment rate will

Question

What is the rational expectations hypothesis? The actual unemployment rate will not equal the natural rate of unemployment. People from their expectations on the values of economic variables based on all available past and current information and their understanding of how the economy functions. If people anticipate a relationship between the actual inflation rate and the unemployment rate then the natural rate of unemployment will be reduced. People will exploit the Phillips curve and demand higher wages. The combination of rational expectations and perfectly competitive markets is best reflected in which of the following models? Real Business Cycle. New Classical. Monetarist. Keynesian.

Explanation / Answer

d. People form their expectations on the values of economic variables based on all available past and current information and their understanding of how the economy functions

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