If Traders in a Market Have Rational Expectations, Then

question 30

Multiple Choice

If traders in a market have rational expectations, then

• A)the price of an asset equals its fundamental value.
• B)prices of riskier assets are higher than prices of less risky assets.
• C)past prices of assets do not affect market participants' expectations of future asset prices.
• D)they make use of less information than they would if they had adaptive expectations.

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Definitions:

Income

The revenue brought in, consistently over time, from professional endeavors or investments.

Budget Constraint

The limits imposed on household choices by income, prices, and taxes, defining the combination of goods and services they can afford.

Income

Proceeds obtained, often periodically, from labor or investment returns.

Utility

A measure of satisfaction or happiness that consumers derive from the consumption of goods and services.