The adaptive expectations hypothesis implies that people
A) adjust their expectations quickly to policy changes.
B) expect the next period to be pretty much like the recent past.
C) will always be correct in their forecast for the next period.
D) change their expectations about the future if policy changes.

Question

Quizplus · Accepted Answer

The adaptive expectations hypothesis predicts that people adjust their expectations based on past experiences, therefore they expect the next period to be similar to the recent past. It does not mean that people will always be correct in their forecast or that they quickly adjust their expectations to policy changes.

The Adaptive Expectations Hypothesis Implies That People