The Application of Rational Expectations to the Permanent-Income Hypothesis Implies

question 1

Multiple Choice

The application of rational expectations to the permanent-income hypothesis implies that information contained in

• A)only past income levels will determine permanent income.
• B)only past income levels will determine transitory income.
• C)only new changes in income that are unanticipated can change permanent income.
• D)only new changes in income that are anticipated can change permanent income.

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Definitions:

Weighted-Average Method

An inventory costing method that assigns a weighted average cost to each unit in inventory, calculated after each inventory purchase.

Equivalent Units

A concept in cost accounting used to allocate costs to partially completed goods, expressed in terms of fully completed units.

Equivalent Units

A concept used in cost accounting to denote the amount of completed units that could have been produced given the total amount of direct materials and labor consumed.