Suppose that a labor union negotiates an increase in wages of 4 percent for the coming year because annual inflation for the past five years has been 4 percent.The expectations formed by the union are:
A)pessimistic expectations.
B)deductive expectations.
C)rational expectations.
D)adaptive expectations.
E)optimistic expectations.

Question

Quizplus · Accepted Answer

The union's expectations are adaptive because they are based on past inflation rates, assuming that future inflation will be similar to past trends.

Suppose That a Labor Union Negotiates an Increase in Wages