According to Rational Expectations, ________

question 81

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 that use all available information

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Definitions:

Aggregate Supply

Aggregate supply is the total supply of goods and services that firms in a national economy plan on selling during a specific time period, under a given price level.

Aggregate Production

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

Aggregate Purchases

The total amount spent by consumers, businesses, and the government on goods and services within a particular period.

Unintended Inventory Investment

Occurs when a business accumulates more inventory than planned due to unexpected changes in demand or production levels.