Question

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

Answer 1

a) the adaptive expectations hypothesis.

Step-by-step explanation:

Adaptive expectations hypothesis is a term in economics that describes the method by which individuals base their future outlooks about what will transpire on what has transpired in the past.

In other words, Adaptive expectations hypothesis is an economic theory which provides significance to preceding or past events in forecasting future developments.

For example, if inflation has been higher than expected in the past, individuals would revise prospects for the future.

Hence, 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: Adaptive Expectations Hypothesis