Rational Expectations Implies

question 24

Multiple Choice

Rational expectations implies

• A) that consumers can be systematically fooled.
• B) that in models with aggregate shocks, consumers and firms always correctly forecast inflation.
• C) that the central bank always foresees what the fiscal authority will do.
• D) that the consumers and firms in models do the best they can in forecasting future economic variables.
• E) that models in which we make this assumption are always right.

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Definitions:

Par Value

The nominal or face value assigned to a share of stock or a bond by the corporation issuing it, important in legal and accounting contexts but not necessarily related to market value.

Stock Split

A corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares, making them more affordable to small investors.

Shares

Shares represent units of ownership interest in a corporation or financial asset, providing shareholders with a proportion of the company's profits and a claim on assets.

Earnings Per Share

A financial metric calculated as a company's net income divided by the number of outstanding shares, indicating the profitability per share.