Macroeconomics

Rational expectations:

An approach that assumes

that people optimally use all available information—

including information about current and prospec-

tive policies—to forecast the future. (Cf. adaptive

expectations.)

Real:

Measured in constant dollars; adjusted for

inflation. (Cf. nominal.)

Real business cycle theory:

The theory accord-

ing to which economic fluctuations can be explained

by real changes in the economy (such as changes in

technology) and without any role for nominal vari-

ables (such as the money supply).

Real exchange rate:

The rate at which one coun-

try’s goods trade for another country’s goods. (Cf.

exchange rate, nominal exchange rate.)

Real interest rate:

The return to saving and the

cost of borrowing after adjustment for inflation. (Cf.

nominal interest rate.)