1. When the government carries out a new expansionary demand management policy, then ________ the rate of adaptation of the expectations to the future prices, ________ the effectiveness of the policy action.

a. Slower, longer.

b. Slower, shorter.

c. Faster, longer.

d. Faster, shorter

2. How did the Rational Expectation Theory take the Adaptive Expectation Theory one step further?

a. The mathematical equation was better formulated.

b. It acknowledged the access public has to more information via television, radio, etc.

c. The Adaptive expectation theory is more flexible.

d. The Adaptive expectation theory addressed the policy makers concerns better.

3. Both expectations hypothesis makes it clear that policy effectiveness is hampered by the _______________ and the _____________.

a. Fluctuations in consumer preference, change in money supply.

b. The information available to the public, the irrationality of their expectations.

c. The information available to the public, the rationality of their expectations.

d. Internal lags, external lags.

4. If an earthquake occurs which causes a disturbance in the economy, the time taken to correctly analyze the severity of the earthquake and develop accurate policy response is called:

a. Data lag.

b. Impact lag.

c. Implementation lag.

d. Transmission lag.