If during the past decade the average rate of monetary growth has been 5 percent and the average inflation rate has been 5 percent, everything else held constant, when the Bank of Canada announces that the new rate of monetary growth will be 10 percent, the adaptive expectation forecast of the inflation rate is ________.
A) 5 percent
B) between 5 and 10 percent
C) 10 percent
D) more than 10 percent

Question

Quizplus · Accepted Answer

Adaptive expectations suggest that people form their expectations of future inflation based on past inflation rates. Since the past inflation rate has been 5 percent, the adaptive expectation forecast would also be 5 percent.

If During the Past Decade the Average Rate of Monetary