The Major Criticism of the View That Expectations Are Formed

question 30

Multiple Choice

The major criticism of the view that expectations are formed adaptively is that ________.

• A) this view ignores the fact that people use more information than just past data to form their expectations
• B) it is easier to model adaptive expectations than it is to model rational expectations
• C) adaptive expectations models have no predictive power
• D) people are irrational and therefore never learn from past mistakes

---

Definitions:

Rent

A regular payment made for the use of land, property, or equipment.

Opportunity Cost

The skipping of feasible improvements from various alternatives due to settling on one.

Own Savings

The portion of personal or household income that is not spent on consumption but is kept aside for future use, investments, or emergencies.

Economic Profit

The variance identified between overall proceeds and all-inclusive financial outgoings, inclusive of both explicit and veiled costs.