Any Test of the Rational Expectations Hypothesis Must Show That

question 152

Multiple Choice

Any test of the rational expectations hypothesis must show that expectations are formed rationally and

• A) the model being used is the true model.
• B) the velocity of money is constant.
• C) there are no price surprises.
• D) all policy changes are anticipated.

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Definitions:

Materiality

A concept in accounting and auditing that pertains to the significance of transactions, balances, and errors, which might influence the decision-making of users of financial statements.

Convertible Bonds

A type of bond that can be converted into a predetermined amount of the company's equity at certain times during its life, usually at the discretion of the bondholder.

Average Number

This typically refers to the statistical measure calculated by summing the values in a set and dividing by the count of values, used in various contexts such as finance, math, and statistics.

Convertible Securities

Financial instruments, such as bonds or preferred shares, that can be converted into a specified amount of another asset, typically common stock, at a predetermined price or timing.