If people behave according to rational expectations theory, ...

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If people behave according to rational expectations theory, people would expect the rate of inflation this year to be:
 a. the same as last year.
  b. zero, regardless of the rate last year.
  c. the rate based on predictable monetary and fiscal policies.
  d. All of these.

Question 2

Last year the Jones family earned 40,000 . This year their income is 42,000 . In an economy with an inflation rate of 10 percent, which of the following is correct?
 a. The Jones' nominal income and real income have both fallen.
  b. The Jones' nominal income and real income have both risen.
  c. The Jones' nominal income has increased and their real income has fallen.
  d. The Jones' nominal income has decreased and their real income has risen.

[Ashley I]

Answer to Question 1

c

Answer to Question 2

c

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Excellent

[recede]

TYSM