According to Rational Expectations

question 37

Multiple Choice

According to rational expectations

• A)expectations of inflation are viewed as being an average of past inflation rates.
• B)expectations of inflation are viewed as being an average of expected future inflation rates.
• C)expectations formation indicates that changes in expectations occur slowly over time as past data change.
• D)expectations will not differ from optimal forecasts using all available information.

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Definitions:

Aggregate Demand

The total amount of goods and services demanded in an economy at a given overall price level and in a given time period.

Price Level Expectations

Price level expectations refer to the anticipated average price level of goods and services in the economy over a certain period, affecting consumer and business spending decisions.

Government Expenditures

Spending by the government sector including consumption, investment, transfer payments, and net exports.

1940s

A decade marked by significant global events including World War II and the beginning of the Cold War.