Would it make sense to argue that rational expectations economics is an extreme version of neoclassical economics? Explain.

Rational expectations economics is a macroeconomic concept that assumes individuals take all available information into account when making decisions and form their expectations of the future based on this information. They are assumed to adapt their expectations whenever new information becomes available. The key implication of this theory is that individuals will not make systematic errors in their expectations, and therefore, any changes in macroeconomic variables can only be caused by unanticipated events or factors.

Neoclassical economics is a broader economic theory that focuses on the concept of market equilibrium and is characterized by the assumptions of perfect competition, utility maximization, profit maximization, and the efficient allocation of resources. Neoclassical economics is based on marginal analysis and the idea that individual agents make decisions at the margin, taking into account the trade-offs involved.

Both rational expectations economics and neoclassical economics make certain assumptions about individual behavior. In both theories, individuals are assumed to be rational agents, seeking to maximize their utility or profit by making optimal choices based on the information available to them. Additionally, both theories emphasize the importance of market equilibrium, wherein supply and demand balance.

Although there are similarities between the two theories, there are also important differences. Rational expectations economics primarily focuses on expectations formation and how these expectations influence macroeconomic variables in the short run. In contrast, neoclassical economics is more concerned with long-run equilibrium and the efficient allocation of resources. Moreover, rational expectations economics is a more specific concept within neoclassical economics. It modifies the assumptions of the neoclassical model to more closely reflect the realistic decision-making processes of individuals in the face of uncertainty. This suggests that rational expectations economics can be seen as a refinement or extension of neoclassical economics, rather than an extreme version.

Based on the similarities and differences discussed above, it seems that although rational expectations economics shares some key features with neoclassical economics, it should not be considered an extreme version of the latter. Instead, rational expectations economics can be seen as a specific development within the broader neoclassical framework, as it refines and extends the analytical tools of neoclassical economics to better understand how individuals form expectations and how these expectations affect macroeconomic outcomes in the short to medium run.