Which of the following is an example of adaptive expectations?
a. James hears that many companies are laying off people and decides not to change his job at this time
b. Kirsten reads about the continuous rise in the prices of necessary goods and the simultaneous rise in the level of unemployment and knows that the country is heading for stagflation.
c. Kate knows that inflation is on the rise and that the best strategy for her firm would be to lower the price of its product.
d. Peter knows that the Federal Reserve is planning to lower interest rates next month and decides to apply for a loan.
a
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A good policy ________________ and a bad policy _________________
a. Moves an asset to higher value use; moves an asset to lower value use b. Moves an asset to lower value use; moves an asset to higher value use c. Refrains from any government intervention; concentrates on government intervention d. Concentrates on government intervention; refrains from government intervention
Assume that a GDP gap can be closed by a $200 initial change in planned spending. The MPS is 0.3 and the MPI equals 0.1 . If the economy is currently in equilibrium with an income level of $600, potential GDP equals:
a. $1,600. b. $1,100. c. $800. d. $600. e. $400.