CFA Practice Question
Which of the following is incorrect?
A. The adaptive-expectations hypothesis is that economic agents believe that the best indicator for the future is what has happened in the recent past.
B. An expansionary monetary policy is more likely to lead to an increase in real GDP if the rational expectations hypothesis rather than the adaptive expectations hypothesis is true.
C. In the rational expectations hypothesis, economic agents take into account the expected effect of changes in monetary and/or fiscal policy.
Explanation: In Rational Expectations, the economic agents make rational inferences of the impact of the government's policy, thus negating its impact. In Adaptive Expectations the agents expect that prior inflation rates etc. will persist, leading to the government policy to have an impact.
User Contributed Comments 0
You need to log in first to add your comment.