According to adaptive expectations theory,if the last three years of inflation were 3 percent,3 percent,and 2 percent,respectively,one would expect inflation the following year to be ________ percent.
A) 0
B) 3
C) 1
D) 4
E) 2

Question

Quizplus · Accepted Answer

Adaptive expectations theory suggests that people form their expectations of future inflation based on past inflation rates. Given the recent trend of 3%, 3%, and 2%, the most likely expectation for the next year would be 2%, as it is the most recent rate.

According to Adaptive Expectations Theory,if the Last Three Years of Inflation