One of the Basic Assumptions of Rational Expectations Theory Is

question 44

Multiple Choice

One of the basic assumptions of rational expectations theory is that

• A) people can anticipate the future effects of policy changes and the actions they take may offset the effects of economic policy.
• B) people are not able to assess the future effects of policy changes, so government can use economic policy effectively.
• C) markets are not very competitive and fail to adjust quickly to changes in demand and supply.
• D) people expect government to solve the major unemployment and inflation problems facing the nation and behave accordingly.

---

Definitions:

Illegal Production

Refers to the manufacturing or production of goods and services that violate laws or regulations, often involving prohibited substances or activities.

GDP Deflator

A measure of the level of prices of all new, domestically produced, final goods and services in an economy, used to adjust GDP for inflation.

Real GDP

Gross Domestic Product adjusted for inflation, providing a more accurate measure of economic performance over time.

GDP Deflator

An economic measure that adjusts nominal GDP for changes in price levels, reflecting the real value of goods and services produced.