One of the Primary Assumptions of the Rational Expectations Model

question 22

Multiple Choice

One of the primary assumptions of the rational expectations model is that

• A) labor and product markets are highly competitive.
• B) people expect others to behave irrationally.
• C) labor markets exhibit short-term stickiness.
• D) prices do not adjust quickly to expansionary policies.

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Definitions:

Federal Reserve

The central banking system of the United States, responsible for monetary policy and regulation of financial institutions.

State Banking Agencies

Governmental bodies at the state level that regulate and oversee banking institutions and their operations within that state.

Federal Comptroller

A government official responsible for supervising the quality and legality of financial and administrative operations in federal agencies.

Underwriting

The process by which insurers or lenders assess the risk of a potential client, deciding whether to accept the risk and on what terms, thereby determining the premium or interest rate.