The Rational Expectations Hypothesis States That

question 42

Multiple Choice

The rational expectations hypothesis states that

• A) the government combines the effects of past policy changes on important economic variables with accepted views about the effects of current and future policy changes.
• B) people combine the effect of past policy changes on important economic variables with unpredictable views on what policy makers will do to determine what the economy will do in the future.
• C) people combine the effects of past policy changes on important economic variables with their own judgments about the future effects of current and future policy changes.
• D) people understand how the economy operates and use their knowledge in making expectations about the future, but are uninformed about how fiscal and monetary policies are made and carried out.

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Definitions:

Market Supply

The total amount of a product or service that is available for purchase at any given price level in a market.

Equilibrium Price of X

The market price at which the quantity of a commodity demanded equals the quantity supplied, specifically for commodity X.

Demand for X

The desire and ability of consumers to purchase a specific product or service, denoted as "X."

Supply of X

The total amount of a product "X" that sellers are willing and able to sell at possible prices, within a given time period.