The hypothesis that people know the true model of the economy and that they use this model to form their expectations of the future is the ?
Correct answer: A. Rational-expectations hypothesis
- A. Rational-expectations hypothesis
- B. Passive-expectations hypothesis
- C. adaptive expectations hypothesis
- D. lagged-expectations hypothesis.
Explanation
The rational-expectations hypothesis says people use an economic model and all available information to forecast the future. Adaptive expectations instead rely mainly on past errors and outcomes, making option c the usual distractor.
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