It was proposed by John Muth, according to the rational expectations theory, individuals form their judgments on personal rationality, knowledge disclosed to them, and their former encounters.
The correct answer is:
Option C. People form the most accurate possible expectations.
This can be explained by:
- According to this theory assessments made by people may be seldom wrong but frequently are correct.
- It is widely exercised in macroeconomics to know the determinations made by individuals.
- The determinations are done based on rationality, facts availability and former events.
Therefore, making specific possible expectations can be a contradictory impact.
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