Rational Expectations Theory

question 112

Multiple Choice

Rational expectations theory

• A) holds that people form expectations on the basis of all available information.
• B) holds that people's expectations of future inflation are based on their most recent experiences.
• C) explains why prices are flexible in the long run.
• D) holds that people form expectations perfectly.
• E) explains the relationship between the unemployment rate and inflation.

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Definitions:

ANOVA

Stands for Analysis of Variance, a statistical method used to determine if there are any statistically significant differences between the means of three or more independent groups.

Tukey-Kramer Procedure

A statistical method used to perform multiple comparisons tests between group means after an ANOVA to find out which specific groups differ from each other.

Q Statistic

A measure used in statistics to test for the independence of two or more groups of data.

Independent Samples T-Test

A statistical test used to compare the means of two independent groups under the assumption that both follow a normal distribution.