The dynamic model of aggregate demand and aggregate supply assumes that people form expectations of inflation based on:
A) forecasts optimally using all available information.
B) recently observed inflation.
C) the central bank's inflation target.
D) the difference between the nominal and real interest rate.

Question

Quizplus · Accepted Answer

The dynamic model of aggregate demand and aggregate supply often assumes that people form expectations of inflation based on recently observed inflation, known as adaptive expectations.

The Dynamic Model of Aggregate Demand and Aggregate Supply Assumes