If the inflation rate in 2013 was 2.5%,and because of that people expect the inflation rate in 2014 will also be 2.5%,these people are said to have
A) rational expectations.
B) expectations of stagflation.
C) adaptive expectations.
D) expectations of supply shocks.

Question

Quizplus · Accepted Answer

Adaptive expectations refer to the assumption that people form their expectations of future inflation based on past inflation rates. In this case, people expect the inflation rate in 2014 to be the same as in 2013, which is an example of adaptive expectations.

If the Inflation Rate in 2013 Was 2