17) Backward-looking expectations may reasonably describe actual behavior becaus
ID: 1193791 • Letter: 1
Question
17)
Backward-looking expectations may reasonably describe actual behavior because
changes in inflation rates or price levels are often temporary.
changes in inflation rates or price levels are often permanent.
the speed of adjustment of prices and wages is difficult to estimate since contract negotiators have
perfect information about negotiations in other industries.
changes in inflation rates or price levels are often temporary.
changes in inflation rates or price levels are often permanent.
the speed of adjustment of prices and wages is difficult to estimate since contract negotiators have
perfect information about negotiations in other industries.
Explanation / Answer
Correct option (c).
Prices and wages adjust to the change in inflation, but this speed is difficult to estimate for consumers. So they base actual behavior on past experiences, that is, on backward looking expectations.
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