A Mainstream Criticism of the Rational Expectations Theory Is That

question 86

Multiple Choice

A mainstream criticism of the rational expectations theory is that:

• A) The theorists confuse correlation with causation in interpreting the empirical evidence
• B) People do not make consistent forecasting errors which can be exploited by policy makers
• C) Many markets are not purely competitive and do not adjust rapidly to changing market conditions
• D) The data indicate that economic policy does not affect real GDP and employment

---

Definitions:

Infants

Young babies, typically from birth to one year old, who are in the early stages of development.

Psychosocial Crisis

A turning point in an individual's life where they face significant challenges in their social and emotional development.

Erik Erikson

A psychoanalyst known for his theory on the psychological development of human beings, emphasizing the impact of society and culture.

Retirement Years

A period in an individual's life post-employment years, often characterized by adjustment to new lifestyles and opportunities for leisure and personal pursuits.