Which of the following is a characteristic of the 'Adaptive Expectations' hypothesis?
A. Only future information matters
B. Expectations are always correct
C. Agents form expectations solely on the basis of past values of the variable
D. Agents use all available information efficiently
Answer: Option C
Solution (By JKSSB Mock Tests)
Under adaptive expectations, agents revise their expectations gradually on the basis of past forecast errors, so that expectations are a weighted average of past observations.
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