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:

Reciprocity/Obligation

The expectation that positive actions will be returned in kind, forming the basis of social behavior and interactions.

Manipulation

The action of controlling or influencing a person or situation cleverly, unfairly, or unscrupulously.

Stage Fright

Anxiety or fear experienced before or during a public performance or presentation.

Preparing

The act of making ready or being made ready for use or consideration, involving planning and arrangement.