The hypothesis that people combine the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes is the basis of the

Question

Quizplus · Accepted Answer

The hypothesis described in the question is the rational expectations hypothesis, which suggests that people use all available information, including past policy changes and their own judgments about future policy changes, to form their expectations about economic variables. The other choices (adaptive hypothesis, short-run Phillips curve hypothesis, and demand-pull inflation hypothesis) do not address this specific hypothesis.

The Hypothesis That People Combine the Effects of Past Policy