After experiencing about 4 percent inflation the last 10 years, Americans start to believe that the inflation for this year is also 4 percent. This belief regarding the future path of inflation based on previous inflation is called:
A) intuitions of inflation.
B) expectations of inflation.
C) rational expectations.
D) a self fulfilling prophecy.

Question

Quizplus · Accepted Answer

The belief regarding the future path of inflation based on previous inflation is called expectations of inflation. Choice A is incorrect as intuitions are not necessarily based on previous experiences or data. Choice C is incorrect as rational expectations refers to the idea that individuals use all available information to form their expectations. Choice D is incorrect as a self-fulfilling prophecy occurs when the belief about a future event causes individuals to behave in ways that make the predicted event more likely to occur.

After Experiencing About 4 Percent Inflation the Last 10 Years