Reflections on Rational Expectations.

The article focuses on the concepts of rational expectations in financial markets. Information on the inconsistency of episodes on rational expectations on statistical technique is presented. Problems associated with empirical tests of the rational expectations hypothesis are discussed. The author feels that, should the U.S. Federal Reserve reduce monetary growth, an economic slump would result that would do little to curb the inflation rate. The rational expectations proposition, which holds that most prices in the economy will conform to the public's expectations of demand and supply, contradicts the interpretation of prices as immediately unresponsive to changes in demand.