Economics Phillips Curve Questions
The concept of rational expectations in the context of the Phillips Curve refers to the idea that individuals and firms form their expectations about future inflation based on all available information, including their understanding of the relationship between inflation and unemployment. Rational expectations assume that people are forward-looking and make decisions based on their rational assessment of the economic environment. In the context of the Phillips Curve, rational expectations suggest that individuals and firms anticipate the impact of changes in monetary policy on inflation and adjust their behavior accordingly. This implies that the Phillips Curve relationship may shift or become less reliable if people have accurate expectations about future inflation.