Explain the rational expectations hypothesis
What will be an ideal response?
The rational expectations hypothesis assumes that people base their forecasts about the future values of economic variables on all available past and current information, and that these expectations incorporate their understanding about how the economy operates, including the operation of monetary and fiscal policy. If there is pure competition in all markets and all prices, including wages, are flexible, then the government cannot affect real GDP except by fooling people and fooling people cannot work for long.
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Which of the following is included as investment in GDP?
i. cars produced during the year but unsold at the end of the year ii. new capital equipment produced and purchased during the year iii. purchases of a company's stocks and bonds A) i only B) ii only C) iii only D) i and ii E) i, ii, and iii
The graph below represents the market for lychee nuts. The equilibrium price is $7.00 per bushel, but the market price is $5.00 per bushel
Identify the areas representing consumer surplus, producer surplus, and deadweight loss at the equilibrium price of $7.00 and at the market price of $5.00.