The ________ hypothesis suggests that errors in forecasting future inflation rates are due to random, unpredictable events.
A) rational-expectations
B) stagflation
C) chaos-theory
D) Friedman

Question

Quizplus · Accepted Answer

The rational-expectations hypothesis suggests that although people may not predict the future perfectly, their errors are random and not systematically biased. This means that on average, people's forecasts of economic variables, like inflation rates, are correct, and deviations from these forecasts are due to random, unpredictable events.

The ________ Hypothesis Suggests That Errors in Forecasting Future Inflation