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Rational Expectations

To have rational expectations, a person must form their expectations based on all of the available information in order to predict the future.  Expected inflation should depend on the policies that are currently in effect.  If the policies change at all, then expectations will also change in accordance with the policies.  This idea of rational expectations suggests that the Phillips Curve does not accurately predict what will happen because if policy makers truly want to decrease inflation without causing an increase in unemployment, then people will understand this and form their expectations around this. 

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