The Rational Expectations Hypothesis Is Based on All the Following

question 140

Multiple Choice

The rational expectations hypothesis is based on all the following assumptions EXCEPT

• A) use of judgment about effects of future policy actions.
• B) use of knowledge of effects of past policy actions.
• C) understanding of how the economy operates.
• D) understanding that prices are sticky.

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Definitions:

Incentive

A form of motivation typically used in a business context to encourage desired behaviors or actions among employees or customers, often through rewards or perks.

Financial Intermediaries

Institutions that act as middlemen in financial markets, facilitating transactions between borrowers and lenders or investors.

Credit Risk

The risk that a borrower may default on any type of debt by failing to make required payments.

Diversify

A risk management strategy that mixes a wide variety of investments within a portfolio to minimize the impact of any single investment's poor performance.