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:

Pareto Analysis

A statistical technique used for decision-making, based on the principle that a small number of causes are responsible for a large percentage of the effect.

Unsatisfying Hotel

A hotel that fails to meet the expectations or satisfaction levels of its guests.

Quality Loss Function

A mathematical formula that quantifies the cost associated with producing items that deviate from target specifications, introduced by Genichi Taguchi.

Pareto Diagram

A graphical representation that displays the relative importance of differences within a set of data, usually to identify which factors are the most significant.