Adaptive expectations theory
A) holds that people form expectations on the basis of all available information.
B) holds that people's expectations of future inflation are based on their most recent experiences.
C) explains why prices are flexible in the long run.
D) holds that people form expectations perfectly.
E) explains the relationship between the unemployment rate and inflation.

Question

Quizplus · Accepted Answer

Adaptive expectations theory suggests that people adjust their expectations of future events based on their most recent experiences. This means that when it comes to inflation, people will base their future expectations on the inflation rate they most recently experienced. For example, if inflation has been low for a few years, people will tend to expect it to remain low in the future.

Adaptive Expectations Theory