An Individual Who Had Rational Expectations Would Be Most Likely

question 173

Multiple Choice

An individual who had rational expectations would be most likely to

• A)ignore information about all current policies of both the government and the Fed.
• B)always disagree with the expectations of someone who believed in adaptive expectations.
• C)use all pertinent information when formulating views about the future.
• D)never anticipate stable prices because monetary authorities continually expand the supply of money rapidly.

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Definitions:

Discount Rate

The discount rate, in finance, is the interest rate used to determine the present value of future cash flows, influencing the attractiveness of investments.

Perpetuity

A financial instrument that provides a stream of indefinite cash flows, or payments, with no end date.

Interest Rate

Interest rate is the proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

Nominal Rate

The stated interest rate on a loan or investment, not accounting for inflation or compounding of interest.