the economics of money, banking, and financial markets

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11. 
    

    An expectation may fail to be rational if ____.
    A) relevant information was not available at the time the forecast is made
    B) relevant information is available but ignored at the time the forecast is made
    C) information changes after the forecast is made
    D) information was available to insiders only
    Answer: B
    Diff: 1 Type: MC Page Ref: 145
    Skill: Recall
    Objective List: 7.2 Determine how information in the market affects asset prices

    
    


12. 
    

    According to rational expectations theory, forecast errors of expectations ____.
    A) are more likely to be negative than positive
    B) are more likely to be positive than negative
    C) tend to be persistently high or low
    D) are unpredictable
    Answer: D
    Diff: 1 Type: MC Page Ref: 145 - 146
    Skill: Recall
    Objective List: 7.2 Determine how information in the market affects asset prices

    
    


13. 
    

    Rational expectations forecast errors will on average be ____ and therefore ____
    be predicted ahead of time.
    A) positive; can
    B) positive; cannot
    C) negative; can
    D) zero; cannot
    Answer: D
    Diff: 2 Type: MC Page Ref: 146
    Skill: Recall
    Objective List: 7.2 Determine how information in the market affects asset prices

    
    


14. 
    

    People have a strong incentive to form rational expectations because ____.
    A) they are guaranteed of success in the stock market
    B) it is costly not to do so
    C) it is costly to do so
    D) everyone wants to be rational
    Answer: B
    Diff: 2 Type: MC Page Ref: 145 - 146
    Skill: Applied
    Objective List: 7.2 Determine how information in the market affects asset prices