One of the Basic Assumptions of Rational Expectations Theory Is

question 75

Multiple Choice

One of the basic assumptions of rational expectations theory is that:

• A) People can anticipate the future effects of policy changes and the actions they take may offset the effects of economic policy
• B) People are not able to assess the future effects of policy changes, so government can use economic policy effectively
• C) Markets are not very competitive and fail to adjust very quickly to changes in demand and supply
• D) People expect government to solve the major unemployment and inflation problems facing the nation and behave accordingly

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Definitions:

Timing

The act of choosing the optimal moment to execute an action in order to achieve the desired outcome.

Harvest Strategy

A business plan for extracting the value of an investment, typically when a firm is ready to be sold or liquidated.

Time Frame

A specified period during which certain activities or events occur or are completed.

Short-Term Profits

Gains realized from business operations or investments over a short period, typically within a year, focusing on immediate financial returns.