Which of the Following Is an Implication of Rational Expectations

question 11

Multiple Choice

Which of the following is an implication of rational expectations theory?

• A) Macroeconometric models based on past behaviour will not be very useful in formulating policy.
• B) Business cycles almost always result from a shift in aggregate demand.
• C) Wages and prices are set almost entirely at random, so it is pointless to try to model their behaviour.
• D) Deviations of output from the natural rate are likely to be serious and long- lived.
• E) The economy is like a complex machine that needs to be optimally controlled with the proper policy.

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Definitions:

Margin

The amount of equity contributed by an investor as a percentage of the current market value of the securities held in a margin account.

Marked To Market

A method of measuring the fair value of accounts that can fluctuate over time, such as assets and liabilities, by updating them to their current market values.

Good-Faith Deposit

A sum of money provided as a sign of commitment or seriousness, often used in transactions like real estate purchases to secure a deal before finalizing.

Broker

An individual or firm that acts as an intermediary between buyers and sellers, usually charging a commission for services.