Which of the following statement statements about expectations theory is true? a) Rational expectations theory does...
Which of the following statement statements about expectations theory is true?
a) Rational expectations theory does not imply that people always predict inflation correctly.
b) Adaptive expectations theory implies that people form expectations on the basis of all available information.
C) Rational expectations theory was developed before adaptive expectations theory.
D) Adaptive expectations theory identifies prediction errors at random.
E) Rational expectations theory implies that people's expectations of future inflation are based on their most recent experience.
Homework Answers
Option A.
- Rational expectations theory is a theory which implies that people usually form expectations based on all available information.
- People often make rational decisions about anticipated inflation by not only considering the current level of inflation but they consider more than that.
- But this theory doesn't imply that people always predict inflation correctly.
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