Which of the following is a characteristic of the 'Rational Expectations' hypothesis?
A. Agents form expectations using all available information and do not make systematic errors
B. Expectations are always adaptive
C. Agents ignore all available information
D. Agents use only past information and make systematic errors
Answer: Option A
Solution (By JKSSB Mock Tests)
Rational expectations imply that agents optimally use all available information, so that forecast errors are uncorrelated with information known at the time the expectation is formed.
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