According to the Theory of Rational Expectations, Individuals Will Respond

question 48

Multiple Choice

According to the theory of rational expectations, individuals will respond to expansionary monetary policy by predicting:

• A) a lower rate of inflation.
• B) a higher rate of inflation.
• C) no change in the rate of inflation.
• D) incorrectly what will happen to the price level and employment.

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Definitions:

Correlation

A statistical measure that describes the extent to which two variables change together, but not necessarily indicating that one causes the other.

Random Assignment

A method used in experiments to ensure that every participant has an equal chance of being assigned to any given group.

Experimental Group

The group in an experiment that receives the treatment or intervention, used to assess the treatment's effect.

Control Group

A group in an experiment or study that does not receive treatment by the researchers and is used as a benchmark to measure how the other tested subjects do.