Question

Does the rational expectations model seem plausible to you? Does this reflect how you plan for the future? Do you consider the state of the economy in your personal decision making at all? Explain your answers.

Answer 1

Yes,rational expectations seems to be a very plausible model for me because it links my decisions and predictions with the state of the economy.

Suppose the prices are high this year and I expect the prices will be higher in the next period but I also know that general elections would be taking place in the next period,so,the government would try to lower than prices to seek votes.Based on this information,my prediction of inflation in the next period would not just be based on current price level but on the other factors as well like inflation and this information would make my prediction more accurate.

Yes I consider the state of the economy like I explained in my answer.