In the View of Rational Expectations Theory

question 78

Multiple Choice

In the view of rational expectations theory,

• A)people make economic forecasts that are based on insider-outsider relationships and self-fulfilling prophecies.
• B)people form beliefs about future economic outcomes that accurately reflect the likelihood that those outcomes will occur.
• C)people form their expectations on present realities and only gradually change their expectations as experience unfolds.
• D)the economy does not respond quickly to changes in prices, which causes a misallocation of economic resources.

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Definitions:

Profit-maximizing

The process or strategy by which a firm determines the price and output level that leads to the maximum profit.

Labor Demand

The total quantity of labor that employers want to hire at a given wage rate.

Labor Supply

Refers to the total hours that workers are willing and able to work at a given wage rate in a specific period.

Profit-maximize

A strategy where a firm makes decisions intended to achieve the highest possible profit.