One of the Basic Assumptions of Rational Expectations Theory Is

question 107

Multiple Choice

One of the basic assumptions of rational expectations theory is that

• A)people can anticipate the future effects of policy changes and the actions they take may offset the effects of economic policy.
• B)people are not able to assess the future effects of policy changes, so government can use economic policy effectively.
• C)markets are not very competitive and fail to adjust quickly to changes in demand and supply.
• D)people expect government to solve the major unemployment and inflation problems facing the nation and behave accordingly.

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Definitions:

GDP Deflator

A gauge for the cost levels of all newly produced, domestic, consumable goods and services in a national economy.

CPI

Consumer Price Index; a measure that examines the weighted average of prices of a basket of consumer goods and services, typically used as an indicator of inflation.

CPI

Short for Consumer Price Index, a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.

Rookie Salary

The initial compensation package awarded to a professional athlete in their first year or season of play.