According to the Theory of Rational Expectations, Errors in Predicting

question 53

Multiple Choice

According to the theory of rational expectations, errors in predicting inflation will

• A) be biased upward more often than not.
• B) be purely random.
• C) tend to be biased downward when inflation is rising, and tend to be biased upward when inflation is falling.
• D) tend to be biased upward when inflation is rising, and tend to be biased downward when inflation is falling.

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Definitions:

Disruptive Action

Activities or strategies intended to interrupt or significantly alter the status quo in a particular context.

Escalation

The process of a conflict intensifying or becoming more severe, often leading to further complications.

Inadvertent Revelation

An unintentional disclosure of private or sensitive information, typically leading to unforeseen consequences.

Distributive Bargaining

A negotiation strategy in which one party's gain is the other party's loss, focusing on dividing a limited amount of resources.