According to the Rational Expectations Hypothesis

Multiple Choice

According to the rational expectations hypothesis

A) people know the true model that generates inflation and use this model to forecast future inflation rates.
B) people assume that the current inflation rate will continue into the future.
C) if people incorrectly anticipate the inflation rate, they adjust their expectations of inflation by some fraction of the difference between their original forecast and the actual inflation rate.
D) people form expectations of inflation only if the benefits of doing so exceed the costs of not forming expectations.