According to Rational Expectations Theory,if the Last Three Years of Inflation

question 12

Multiple Choice

According to rational expectations theory,if the last three years of inflation were 0 percent,2 percent,and 4 percent,respectively,one would expect inflation the following year to be ________ percent.

• A) 4
• B) 6
• C) 2
• D) 0
• E) 3

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Definitions:

Inflation Rate

measures the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.

1960s

Refers to the decade from 1960 to 1969, characterized by significant social, political, and cultural changes worldwide.

1970s

A decade characterized by significant political, social, and economic changes worldwide, including the end of the Vietnam War and the oil crisis.

Unemployment Rate

The share of the labor market that is unoccupied but searching for jobs.