A Mainstream Criticism of Rational Expectations Theory Is That

question 42

Multiple Choice

A mainstream criticism of rational expectations theory is that

• A) the theorists confuse correlation with causation in interpreting the empirical evidence.
• B) people do not make consistent forecasting errors that can be exploited by policymakers.
• C) many markets are not purely competitive and do not adjust rapidly to changing market conditions.
• D) the data indicate that economic policy does not affect real GDP and employment.

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Definitions:

Hindsight Bias

The tendency to believe, after an event has occurred, that one would have predicted or expected the outcome, often referred to as the "I knew it all along" phenomenon.

Intent to Hurt

A conscious desire or determination to harm others, either physically or psychologically.

Physical Damage

Physical damage refers to harm that affects the structure or integrity of an object or bodily harm to a living being.

Anger and Hostility

Emotional states expressing intense frustration or animosity, often leading to aggressive behavior or opposition.