Adaptive Expectations Theory

question 124

Multiple Choice

Adaptive expectations theory:

• A) holds that people form expectations on the basis of all available information.
• B) holds that people's expectations of future inflation are based on their most recent experience.
• C) explains why prices are flexible in the long run.
• D) holds that people form expectations perfectly.
• E) explains the relationship between the unemployment rate and inflation.

---

Definitions:

Attitude

A psychological construct representing an individual's degree of like or dislike for an item.

Belief

An acceptance that something exists or is true, especially one without proof.

Fundamental Attribution Error

A cognitive bias that causes people to overemphasize personal characteristics and ignore situational factors in judging others' behavior.

Good Actions

Behaviors or deeds that are ethically right, beneficial to others, or contribute positively to society.