Suppose last year's inflation rate was 5%, but Wall Street analysts expect this year's interest rate to be 4%. Which of the following correctly describes people's beliefs according to rational or adaptive expectations theories?
A.) According to rational expectations, people will anticipate 5% inflation this year.
B.) According to adaptive expectations, people will anticipate 4% inflation this year.
C.) According to rational expectations, people will anticipate 1% inflation this year.
D.) According to adaptive expectations, people will anticipate 1% inflation this year.
E.) None of these answers is correct.
1 answer
The answer is E. None of these answers is correct.
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