The Proponents of Adaptive Expectations Believe That

question 59

Multiple Choice

The proponents of adaptive expectations believe that

• A) there will be a substantial time lag before people anticipate the effects of a shift to a more expansionary macro-policy.
• B) macro-policies that stimulate demand and place upward pressure on the general level of prices will temporarily increase output and employment.
• C) discretionary changes in macro-policy can be made in a manner that will reduce the economic ups and downs of a market economy.
• D) all of the above are true.

---

Definitions:

Discount Rate

The interest rate used to discount future cash flows to their present value, often reflecting the cost of capital or the risk of the investment.

Present Value

The present evaluation of a future cash sum or series of cash receipts, factoring in a certain rate of return for discounting.

Interest Rate

The sum a lender charges a borrower to use assets, conveyed as a percentage of the principal's amount.

Present Value

The here and now valuation of a prospective future financial amount or series of cash flows, calculated with a certain return rate.