The Rational Expectations Hypothesis Is a Theory That States That

question 155

Multiple Choice

The rational expectations hypothesis is a theory that states that

• A) individuals can predict the future perfectly, at least with respect to macroeconomic variables like the interest rate and inflation.
• B) people make their economic plans by using all available past and present information and their understanding about how the economy operates.
• C) people make their economic plans in an irrational, intuitive manner.
• D) people make their economic plans by relying on the policy statements made by the President and by leaders in Congress.

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Definitions:

Cerebral Cortex

The outermost layer of the brain, involved in high-level functions such as thought, language, memory, and consciousness.

Frontal

Pertaining to the front part of something, often used in the context of the frontal lobe of the brain which is associated with decision making, problem solving, and controlling behavior.

Algebra Equations

Mathematical statements that use algebraic expressions to relate two quantities, often requiring the finding of unknown values.

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The cognitive process of identifying and categorizing objects based on their features and context.