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:

Bailment

The act of temporarily placing control over or possession of personal property in the hands of another, under agreement.

Ordinary Care

The level of care that a reasonably careful person would exercise under similar circumstances to avoid harm to themselves or others.

Prudent Person

A legal standard referring to the hypothetical individual who exercises the care, diligence, and wisdom that a reasonable person would under similar circumstances.

Checkroom

A place where visitors can deposit their personal belongings, such as coats and bags, for safekeeping.