Two alternative theories that hypothesize how people form expectations are ________ expectations theory and ________ expectations theory.
A) adaptive; rational
B) perfect; adaptive
C) rational; perfect
D) realistic; perfect
E) adaptive; realistic

Question

Quizplus · Accepted Answer

Adaptive expectations theory suggests that people form expectations based on past experiences and gradually adjust them as new information becomes available. Rational expectations theory posits that individuals use all available information, including understanding of economic policies, to make forecasts that are, on average, accurate.

Two Alternative Theories That Hypothesize How People Form Expectations Are