The Theory of Rational Expectations Concludes That

question 70

Multiple Choice

The theory of rational expectations concludes that

• A)the public's expectations can influence the outcome of monetary policy but not of fiscal policy.
• B)the public's expectations can influence the outcome of fiscal policy but not of monetary policy.
• C)the public's expectations as to the effects of economic policies tends to reinforce the effectiveness of those policies.
• D)by reacting in its self-interest to the expected effects of stabilization policy, the public tends to negate the impact of those policies.

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Definitions:

Insurance Policy

A contractual agreement between an individual or entity and an insurance company, outlining the terms for the insurer to compensate the insured for specific losses in exchange for premiums paid.

Premium

An amount paid in addition to a standard price, often for insurance, or a higher or more privileged level of service or product.

Expected Value

A calculated average of all possible outcomes of a particular random variable, weighted by their respective probabilities.

Certain Income

Certain income refers to a guaranteed or fixed amount of earnings that an individual or entity can expect to receive over a period.