The Theory of Rational Expectations Is Consistent with Which Statement

Multiple Choice

The theory of rational expectations is consistent with which statement?

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.