Use the table below to choose the correct answer.

According to the adaptive expectations hypothesis,at the beginning of period 3,decision makers would expect inflation during period 3 to be

Question

Use the table below to choose the correct answer.

According to the adaptive expectations hypothesis,at the beginning of period 3,decision makers would expect inflation during period 3 to be

Quizplus · Accepted Answer

According to the adaptive expectation hypothesis, individuals form their expectations about future inflation based on their past experiences. Therefore, at the beginning of period 3, individuals would expect inflation to be the same as the average rate of inflation during the first two periods, which is (0% + 4%) / 2 = 2%. Option A is the only option that corresponds to this expectation.

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