The Rational-Expectations Hypothesis Suggests That the Forecasts That People Make

question 107

Multiple Choice

The rational-expectations hypothesis suggests that the forecasts that people make concerning future inflation rates

• A) are always correct.
• B) consistently overestimate the actual rate of inflation in the future.
• C) are correct on average, but are subject to errors that are distributed randomly.
• D) consistently underestimate the actual rate of inflation in the future.

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Definitions:

Payback Periods

The duration of time it takes to recover the cost of an investment through the investment's cash flows.

Risks

The potential for losing something of value or the chance of an adverse outcome.

Hurdle Rate

The minimum acceptable rate of return on an investment, used as a benchmark for deciding whether to pursue a project.