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246 Frederic S. Mishkin Economics of Money, Banking, and Financial Markets, Seventh Edition

45)

If expectations are formed adaptively, then people

(a)

use more information than just past data on a single variable to form their expectations of that variable.

(b)

often change their expectations quickly when faced with new information.

(c)

use only the information from past data on a single variable to form their expectations of that variable.

(d)

do none of the above.

Answer:

Question Status: Previous Edition

46)

The assumption that people use only the information from past data on a single variable to form their expectations of that variable is called the

(a)

adaptive expectations hypothesis.

(b)

Lucas critique.

(c)

Ricardian equivalence theorem.

(d)

rational expectations hypothesis.

Answer:

Question Status: Previous Edition

47)

In rational expectations theory, the term “optimal forecast” is essentially synonymous with

(a)

correct forecast.

(b)

the correct guess.

(c)

the actual outcome.

(d)

the best guess.

Answer:

Question Status: Previous Edition

48)

If additional information is not used when forming an optimal forecast because it is not available at that time, then expectations are

(a)

obviously formed irrationally.

(b)

still considered to be formed rationally.

(c)

formed adaptively.

(d)

the result of none of the above.

Answer:

Question Status: Previous Edition

49)

According to rational expectations theory, forecast errors of expectations

(a)

are more likely to be negative than positive.

(b)

are more likely to be positive than negative.

(c)

tend to be persistently high or low.

(d)

are unpredictable.

Answer:

Question Status: Study Guide

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