Rational Expectations Theory Is Based on All of the Following

question 154

Multiple Choice

Rational expectations theory is based on all of the following assumptions,except

• A)that individuals and business firms learn through experience to anticipate the consequences of changes in monetary and fiscal policy.
• B)that individuals and business firms act instantaneously to protect their economic interests.
• C)that demand creates its own supply.
• D)that all resource and product markets are purely competitive.

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Definitions:

Unlevered Cost

The cost of financing a project or investment without the impact of debt, or the cost of capital for a company with no debt.

Cost of Equity

The rate of return a company is expected to pay to its shareholders for their investment in the company's equity, often estimated using the Capital Asset Pricing Model (CAPM).

Pre-Tax Cost

The expense or cost incurred by an entity that has not yet been reduced by considerations for taxes.

Leverage Operations

Financial strategies involving the use of borrowed money to increase the potential return of an investment.