If the inflation rate has risen 2 percent a year for the past three years, then using this experience to forecast a 2 percent rise in the coming year's inflation rate is an example of
A) traditional expectations.
B) rational expectations.
C) adaptive expectations.
D) reflective expectations.
E) deductive expectations.

Question

Quizplus · Accepted Answer

This is an example of adaptive expectations, where individuals base their expectations of future outcomes on past experiences. In this case, people are adapting their expectations of the inflation rate based on the past three years' experience of a 2 percent rise.

If the Inflation Rate Has Risen 2 Percent a Year