The Theory of Rational Expectations Concludes That

question 225

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:

Variable Costs

Expenses that change in proportion to the activity of a business, such as the cost of raw materials or production costs.

Variable Costs

Costs that vary directly with the level of production or output.

Financial Performance

A measure of how well a company can use assets to generate earnings, often evaluated through financial statements and ratios.

Modigliani and Miller

Theorists who developed propositions regarding the impact of capital structure on a company's value and its cost of capital, assuming no taxes and market imperfections.