The Hypothesis That People Believe the Best Indicator of the Future

question 25

Multiple Choice

The hypothesis that people believe the best indicator of the future is the recent past is known as:

• A)rational expectations.
• B)adaptive expectations.
• C)lagged expectations.
• D)trend expectations.

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Definitions:

Real Interest Rates

This is the interest rate after inflation adjustment, demonstrating the true cost of loans or the actual gains from savings accounts.

Nominal Interest Rates

The interest rates before adjustments for inflation, indicating the gross return on financial investments or loans.

Inflation

The rate of increase in the general price index for goods and services, leading to a decrease in how much can be bought.

Purchasing Power

The amount of goods or services one can obtain with a single unit of currency, determining its value.