A Rational Expectation of Inflation Is

question 168

Multiple Choice

A rational expectation of inflation is

• A) how economists make perfect forecasts of inflation.
• B) how unexpected inflation affects the economy.
• C) why unexpected inflation redistributes income.
• D) a forecast of inflation that uses all relevant information.

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Definitions:

Elastic

A term used in economics to describe a situation in which the supply or demand for a good or service is sensitive to changes in price.

Demand Curve

A graph showing the relationship between the price of a good and the quantity of that good consumers are willing and able to purchase, ceteris paribus.

Price Elasticity

The measure of how much the quantity demanded of a good responds to a change in the price of that good, expressing the sensitivity of demand to price changes.

Price Elasticity

An evaluation of how shifts in a good's price affect the quantity of it demanded.