When a person bases her future expectations for the economy on all available current data and her own judgement about future policy effects, this is known as a) rational expectations b) irrational expectations c) the policy irrelevance proposition d) the new classical theory

The answer to this question is:

a) Rational expectations

According to rational expectation theory, individuals make decisions based on the information available, past encounters as well as their rational outlook. For example, if property developers constructed more houses that resulted in a drop in the prices of homes, the following year, they may decide to restrict supply so as to raise the prices. However, the property developers will also consider other factors like income levels of residents, immigration levels, and the cost of mortgages when deciding about the supply of homes.