The view that individuals weigh all available evidence when they formulate their expectations about economic events (including information concerning the probable effects of current and future economic policy) is called:
a. the adaptive expectations hypothesis.
b. the permanent income hypothesis.
c. the rational expectations hypothesis.
d. the Phillips curve.
QUESTION 2If consumption is 800 when income is 1,000 . the marginal propensity to consume (MPC) must be 0.80.
a. True
b. False
Indicate whether the statement is true or false
QUESTION 3A reduction in the rate of inflation is called:
a. deflation.
b. disinflation.
c. hyperinflation.
d. cost-push inflation.
QUESTION 4The marginal propensity to consume (MPC) is the change in consumption divided by the change in saving.
a. True
b. False
Indicate whether the statement is true or false
QUESTION 5Under the rational expectations hypothesis, which of the following is the most likely short-run effect of a move to expansionary monetary policy?
a. A higher general level of prices but no change in real output
b. A higher general level of prices and an expansion in real output
c. No change in the general level of prices and a reduction in real output
d. No change in either the general level of prices or real output
QUESTION 6Price indexes like the CPI are calculated using a base year. The term base year refers to:
a. the first year that price data are available.
b. any year in which inflation was higher than 5 percent.
c. the most recent year in which the business cycle hit the trough.
d. an arbitrarily chosen reference year.
QUESTION 7The marginal propensity to consume (MPC) is the change in consumption divided by the change in income.
a. True
b. False
Indicate whether the statement is true or false
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