A Rational Expectation Is

question 18

Multiple Choice

A rational expectation is

• A) the forecast that automatically carries over from past forecasts.
• B) the best possible forecast based upon all relevant information.
• C) a forecast devoid of all emotions.
• D) a forecast which perfectly foretells the future.

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Definitions:

Marginal Tax Rate

The rate at which the next dollar of taxable income is taxed, indicating the tax impact on an additional unit of income.

Relative-price Variability

The fluctuation and differences in price levels of goods and services relative to each other over time.

Efficiently Allocate

The process of distributing resources in a manner that maximizes the effectiveness or utility of their use.

Monetary Neutrality

The economic theory that changes in the money supply only affect nominal variables and have no effect on real variables such as output or unemployment in the long run.