According to the rational expectations theory the rate of inflation largely depends on

A) business expectations of interest rate levels.
B) business expectations about international trade.
C) what people expect to happen to prices.
D) the unemployment rate.

According to the rational expectations theory, the rate of inflation largely depends on what people expect to happen to prices. This theory suggests that people and businesses make economic decisions based on their rational expectations of future events, including inflation. If people expect prices to rise, for example, they may demand higher wages or raise prices themselves, which can contribute to inflation. Conversely, if people expect prices to remain stable, they may act in ways that help to keep inflation in check. Therefore, the expectations of individuals and businesses play a key role in determining the rate of inflation.