Question

Adaptive expectations theory

a) explains the relationship between the unemployment rate and inflation.
b) holds that people form expectations perfectly.
c) holds that people’s expectations of future inflation are based on their most recent experiences.
d) holds that people form expectations on the basis of all available information.
e) explains why prices are flexible in the long run.

Answer 1

Option c

Step-by-step explanation:

Adaptive expectation theory is a theory that predict future inflation on the basis of their past experience. According to this it is experience of past that make possible to predict the future.

therefore adaptive expectation theory hold expectation of individual for future inflation on the basis of their past experience.

for example - if inflation in the previous year are high then it is expected that future inflation would be high as before.