The rational expectations hypothesis is based on the assumption that

A) individuals combine effects of past policy actions with their own judgment about future policy effects and changes when forming their expectations.
B) individuals adapt in response to past policy actions and changes without looking ahead when forming their expectations.
C) firms pay above equilibrium wages to their employees.
D) most firms operate in a less than competitive environment.

Answer: A) individuals combine effects of past policy actions with their own judgment about future policy effects and changes when forming their expectations.