[Solved] If Expectations Are Formed Rationally,then Individuals

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

The major criticism of the view that expectations are formed adaptively is that A)this view ignores that people use more information than just past data to form their expectations. B)it is easier to model adaptive expectations than it is to model rational expectations. C)adaptive expectations models have no predictive power. D)people are irrational and therefore never learn from past mistakes.

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.

If a forecast is made using all available information,then economists say that the expectation formation is A)rational. B)irrational. C)adaptive. D)reasonable.

If a forecast made using all available information is NOT perfectly accurate,then it is A)still a rational expectation. B)not a rational expectation. C)an adaptive expectation. D)a second-best expectation.

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)formed equivalently.

An expectation may fail to be rational if A)relevant information was not available at the time the forecast is made. B)relevant information is available but ignored at the time the forecast is made. C)information changes after the forecast is made. D)information was available to insiders only.

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.

When using rational expectations,forecast errors will,on average,be ________ and ________ be predicted ahead of time. A)positive;can B)positive;cannot C)negative;can D)zero;cannot

People have a strong incentive to form rational expectations because A)they are guaranteed of success in the stock market. B)it is costly not to do so. C)it is costly to do so. D)everyone wants to be rational.