The Rational-Expectations Hypothesis Suggests That Errors in Forecasting Future Inflation

question 97

Multiple Choice

The rational-expectations hypothesis suggests that errors in forecasting future inflation rates are due to

• A) random, unpredictable events.
• B) the fact that people assume that the current inflation rate will continue into the future.
• C) the fact that people consistently underestimate future inflation.
• D) the fact that people consistently overestimate future inflation.

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Definitions:

Maximize Interests

The process of optimally increasing the benefits or gains from a situation or decision.

Maintain Associations

The ongoing effort to keep relationships or connections between entities or concepts active and beneficial.

Offer Rewards

The practice of providing incentives or compensation to encourage specific behaviors or actions.

Ethnomethodological

Refers to the study of the methods and practices people use in everyday life to understand and produce the social order.