Rational Expectations Involve the Assumption That

question 83

Multiple Choice

Rational expectations involve the assumption that

• A)market participants make use only of information on the past performance of an asset in determining what they believe its price should be.
• B)market participants rarely change their minds about the correct price of an asset.
• C)financial markets are good at increasing liquidity, but poor at transmitting information.
• D)market participants makes use of all available information.

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Definitions:

Raw Materials Quantity Variance

The difference between the expected and actual quantity of raw materials used in production, affecting manufacturing costs.

Materials Price Variance

This is the difference between the actual cost of direct materials and the standard cost, multiplied by the quantity purchased.

October

The tenth month of the year in the Gregorian calendar, preceding November.

Variable Overhead Efficiency Variance

This is the difference between the expected (standard) cost of variable overheads based on actual production outputs and the actual variable overhead costs incurred.