196 $
© 2014 Pearson Canada Inc.$
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
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
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
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