One Major Assumption of the Theory of Rational Expectations Is

question 245

Multiple Choice

One major assumption of the theory of rational expectations is that

• A)all firms use rational expectations.
• B)the economy does not have a self-correction mechanism.
• C)the economy has a very effective self-correction mechanism.
• D)all consumers use rational expectations.

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Definitions:

Habituation

A psychological learning process wherein there is a decrease in response to a stimulus after being repeatedly exposed to it.

Newborn Infant

An infant who is within the first hours to a few weeks of life, characterized by rapid development and adaptation to the external world.

Habituation

The process of becoming accustomed to a stimulus after repeated exposure, leading to a decrease in response.

Babble

The sounds, speech, or nonsense talk uttered by infants as they begin to experiment with vocalizations.