According to the Rational Expectations Theory

question 23

Multiple Choice

According to the rational expectations theory,

• A) on average people have very little idea of what to expect from government policy makers.
• B) people form expectations by focusing only on the private sector.
• C) people do not consider likely government policies when forming expectations.
• D) people form expectations, in part, by considering the probable future effects of changes in government policy.

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Definitions:

Lump Sum Tax

A tax that is a fixed amount, regardless of the taxpayer’s income level, assets, or usage of services.

Long-Run Cost

The total cost of production when all factors of production can be varied, typically associated with the planning of long-term business strategies.

Production Functions

Production functions describe how a firm transforms inputs into outputs, relating the quantity of factor input to the quantity of output produced.

Industry Supply Curve

A graphical representation showing the relationship between the price of a good and the total output provided by all firms in the industry.