Rational Expectations Macro Model

The Rational Expectations Macro Model is an economic framework where individuals and businesses form expectations about the future based on all available information and logical reasoning. They accurately anticipate policies and economic conditions, making decisions that align with actual outcomes over time. This means markets are efficient, and policymakers cannot systematically outsmart the economy since people adjust their behavior based on expectations. In essence, it assumes that everyone uses information optimally, leading to predictions about economic variables (like inflation or growth) that are, on average, correct.