Under adaptive expectations theory, people persistently:
A) underestimate inflation when it is slowing down.
B) overestimate inflation when it is accelerating.
C) underestimate inflation when it is accelerating.
D) adapt to the prevailing inflation rate.

Question

Quizplus · Accepted Answer

Under adaptive expectations theory, people tend to underestimate inflation when it is accelerating because they base their expectations on past inflation rates, which may not fully account for the current acceleration.

Under Adaptive Expectations Theory, People Persistently