the economics of money, banking, and financial markets

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7. 
   

   In rational expectations theory, the term "optimal forecast" is essentially synonymous with
   ____.
   A) correct forecast
   B) the correct guess
   C) the actual outcome
   D) the best guess
   Answer: D
   Diff: 1 Type: MC Page Ref: 144
   Skill: Recall
   Objective List: 7.2 Determine how information in the market affects asset prices

   
   


8. 
   

   If a forecast is made using all available information, then economists say that the expectation
   formation is ____.
   A) rational
   B) irrational
   C) adaptive
   D) reasonable
   Answer: A
   Diff: 1 Type: MC Page Ref: 144
   Skill: Recall
   Objective List: 7.2 Determine how information in the market affects asset prices

   
   


9. 
   

   If a forecast made using all available information is not perfectly accurate, then it is
   ____.
   A) still a rational expectation
   B) not a rational expectation
   C) an adaptive expectation
   D) a second-best expectation
   Answer: A
   Diff: 1 Type: MC Page Ref: 144 - 145
   Skill: Recall
   Objective List: 7.2 Determine how information in the market affects asset prices

   
   


10. 
    

    If additional information is not used when forming an optimal forecast because it is not
    available at that time, then expectations are ____.
    A) obviously formed irrationally
    B) still considered to be formed rationally
    C) formed adaptively
    D) formed equivalently
    Answer: B
    Diff: 1 Type: MC Page Ref: 145
    Skill: Recall
    Objective List: 7.2 Determine how information in the market affects asset prices