Use the table below to choose the correct answer.
Time Period Actual Inflation -
14 percent
24 percent
36 percent
48 percent
According to the adaptive expectations hypothesis, at the beginning of period 3, decision makers would expect inflation during period 3 to be ________.
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A. B. C. D.Explanation
Under the adaptive expectations hypothesis economic agents base their future expectations on actual outcomes observed during recent periods. Thus, the most recent periods suggest an inflation rate of 4 percent will persist in the future.