MACRO

posted by .

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.

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. Macroeconomics

    A) Suppose that as the economic recovery strengthened consumer expectations of annual inflation increased from 2% to 3.5 % and, at the same time, the expected real rate of return required to equate investor demand to the existing supply …
  2. economics

    Jerry will receive the following payments: 946 in year 3, 929 in year 5 and 958 in year 9. What is the purchasing power of the present value of these payments if the market interest rate is 17% per year and the inflation rate is 6% …
  3. Managerial Finance

    Due to a recession, expected inflation this year is only 2%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 2%. Assume that expectations theory holds and the real risk-free rate …
  4. Math/Finance

    Due to a recession, expected inflation this year is only 2%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 2%. Assume that expectations theory holds and the real risk-free rate …
  5. Economics

    The formula given was: (real rate of interest) = (nominal rate of interest) - (expected rate of inflation) A chartered bank offers a one-year loan at "3 points above prime." Prime is 4 per cent. a) What is the nominal interest rate?
  6. macroeconomics

    Which of the following theories of expectations holds that individuals use all information available in forming expectations?
  7. College Finance

    1.A recent edition of The Wall Street Journal reported interest rates of 10.75 percent, 11.10 percent, 11.48 percent, and 11.75 percent for 3-, 4-, 5-, and 6-year Treasury security yields, respectively. According to the unbiased expectation …
  8. Econ

    The 1-year interest rate on Swiss francs is 5 percent and the dollar interest rate is 8 percent. (A) if the current $/SF spot rate is $0.60, what would you expect the spot rate to be in 1 year. (B) Suppose US policy changes and leads …
  9. Finance

    Due to a recession, expected inflation this year is only 2.75%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 2.75%. Assume that expectations theory holds and the real risk-free …
  10. finance

    You note the following yield curve in The Wall Street Journal. According to the unbiased expectations theory, what is the 1-year forward rate for the period beginning one year from today, 2f1?

More Similar Questions