Economics, 3rd Edition

rational expectations 

the theory according to which 

people optimally use all the information they have, including 

information about government policies, when forecasting the 

future

rational ignorance effect 

the tendency of a voter to not seek 

out information to make an informed choice in elections

reaction function 

the decision of one firm on a particular issue 

such as the profit maximizing output in response to the profit 

maximizing output decisions of its rivals

real exchange rate 

the rate at which a person can trade the 

goods and services of one country for the goods and services of 

another

real GDP 

the measure of the value of output in the economy 

which takes into account changes in prices over time

real interest rate 

the interest rate corrected for the effects of 

inflation