The Rational-Expectations Hypothesis Suggests That the Forecasts That People Make

question 107

Multiple Choice

The rational-expectations hypothesis suggests that the forecasts that people make concerning future inflation rates

• A) are always correct.
• B) consistently overestimate the actual rate of inflation in the future.
• C) are correct on average, but are subject to errors that are distributed randomly.
• D) consistently underestimate the actual rate of inflation in the future.

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Definitions:

Deadweight Losses

A loss of economic efficiency that can occur when the equilibrium for a good or service is not achieved or is not achievable.

Deadweight Loss

The dip in economic performance due to the non-achievement or the impracticality of achieving the market balance for a good or service.

Government Programs

Initiatives and schemes developed and introduced by the government aimed at improving the welfare of its citizens, which can include healthcare, education, and social security among others.

Deadweight Loss

An economic inefficiency that occurs when the total amount of losses in welfare or surplus exceeds the gains, often due to taxes or monopolies.