Which of the Following Would Be a Violation of the Rational

question 51

Multiple Choice

Which of the following would be a violation of the rational expectations assumption?

• A) "Over the past twenty years, people have consistently over- predicted the inflation rate for the following year."
• B) "Over the past twenty years, people have never once accurately predicted the inflation rate for the following year."
• C) "The RBA's announcement that it might ease interest rates caused an immediate decrease in short- term rates, even before the RBA took any action."
• D) Both A and B.
• E) Both A and C.

---

Definitions:

Work-Related Decision

A choice or judgment made in the context of one's employment or job responsibilities.

Adam Smith

An 18th-century Scottish economist and philosopher best known for his theories on free market economies, depicted in "The Wealth of Nations."

Profit

The financial gain that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.

Mechanistic Organization

A highly structured, rigid, and bureaucratic form of organization based on centralized authority and a hierarchical line of command.