The adaptive expectations theory suggests that

Question

Quizplus · Accepted Answer

The adaptive expectations theory suggests that people form their inflation expectations based on past prices and the behavior of prices in the past, thus adapting to changes in the price level over time. This means that people may not always predict future price levels correctly or have perfect foresight, as suggested in options B and C. Option D is partially correct, as people do use current information in their expectations but also rely on past prices. Option E is not true, as people do consider past and present information to formulate expectations.

The Adaptive Expectations Theory Suggests That