During a time when the inflation rate is increasing each year for a number of years, are adaptive expectations or rational expectations likely to give the more accurate forecasts? Briefly explain
What will be an ideal response?
Rational expectations are likely to give the more accurate forecasts. When inflation is increasing over time, adaptive expectations that rely only on past information will always lead to a lower inflation forecast than actual inflation.
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When the Fed changes the quantity of money, there is an immediate effect on
A) the inflation rate but not the price level. B) the nominal interest rate. C) real GDP. D) the price level and the inflation rate. E) the price level but not the inflation rate.
If two goods are substitutes, the cross-price elasticity of demand must be
A) negative. B) positive. C) zero. D) infinite.
If the unemployment rate is 5 percent (full employment), the United States economy is operating
A. inside the production curve. B. on the production curve. C. outside the production curve.
Unemployment compensation is an example of a(n) ______.
a. automatic stabilizer b. index c. sacrifice ratio d. positive supply shock