Question

Most economists A. apply the assumption that people rarely behave as if they act rationally although they do aim to maximize utility. B. rely on seemingly irrational behavior to reject the assumption of rationality. C. apply the assumption that people behave as if they act rationally with an aim to maximize utility. D. None of the above.

Answer 1

Answer:

The correct answer is letter "C": apply the assumption that people behave as if they act rationally with an aim to maximize utility.

Explanation:

The theory of rational expectations is mainly used in macroeconomics, with the idea that decisions of individuals will affect the future course of the economy. According to this theory, people's behaviors are based on rationality, all the information that they have available, and past experiences.

Some of the rational expectations theory's premises are that people hold expectations that will be met, variables values (price, output, and employment) are taken into account, and individuals are always trying to maximize their profits.