According to Adaptive Expectations Theory,when Inflation Accelerates

question 155

Multiple Choice

According to adaptive expectations theory,when inflation accelerates,

• A) people underestimate inflation.
• B) people overestimate inflation.
• C) people correctly estimate inflation.
• D) people change to rational expectations.
• E) unemployment must increase.

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Definitions:

Assets

Resources owned by a business from which future economic benefits are expected to flow to the enterprise.

Equity

The value of an ownership interest in property or a business, calculated as total assets minus total liabilities; represents what the owners' claim on the assets is.

Entity Assumption

The accounting principle that treats a business as a separate legal and accounting entity, distinct from its owners, managers, or operators.

Historical Cost Principle

An accounting principle that assets should be recorded and reported at their original purchase cost.