The Argument in Favor of Rational Expectations Is That

question 203

Multiple Choice

The argument in favor of rational expectations is that

• A) people will continue to acquire information as long as the marginal benefit of that information is positive.
• B) individuals have a very good idea of what to expect from the government in terms of monetary policy but not fiscal policy.
• C) it is costless for individuals and firms to form rational expectations.
• D) if expectations were not rational, there would be unexploited profit opportunities available.

---

Definitions:

Future Value

The predicted amount of money that a current investment will grow to at a certain future date, based on an assumed rate of growth or interest rate.

Interest

Interest is the charge for the privilege of borrowing money, typically expressed as an annual percentage rate.

Rule of 70

A formula to estimate the number of years required to double the value of something at a constant growth rate, calculated as 70 divided by the growth rate.

Interest

The cost incurred for the benefit of borrowing funds, usually presented as a yearly percentage rate.