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

Question

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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 expectations hypothesis, decision makers update their expectations based on the previous period's actual inflation rate. In period 2, the actual inflation rate was 5%, so in period 3, decision makers would expect inflation to continue at that rate. Therefore, the answer is B) 5 percent.

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