Which of the Following Is an Implication of Rational Expectations

question 40

Multiple Choice

Which of the following is an implication of rational expectations theory?

• A)Deviations of output from the natural rate are likely to be serious and long-lived.
• B)The economy is like a complex machine, that needs to be optimally controlled with the proper policy.
• C)Macroeconometric models based on past behavior will not be very useful in formulating policy.
• D)Wages and prices are set almost entirely at random, so it is pointless to try to model their behavior.
• E) Business cycles almost always result from a shift in aggregate demand.

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Definitions:

Unrealized Loss

A loss that results from holding onto an asset that has decreased in value, but has not yet been sold or liquidated.

Amortized Cost Basis

A valuation method for certain investments that smooths out returns over the life of the investment, taking into account amortization or accretion adjustments.

Income Statement

A financial statement that reports a company's financial performance over a specific accounting period, detailing revenues, expenses, and net income.

Other than Temporary

Refers to impairments or reductions in asset values that are not expected to be recovered in the short term.