Which of the following is a key difference between a rational expectations perspective and an adaptive expectations perspective? The adaptive expectations perspective believes individuals have access to limited data and change expectations gradually while the rational expectations perspective is that prices change quickly as new economic information becomes available. Rational expectations are based off of historical data while adaptive expectations use real time data. Government agencies tend to have rational expectations, due to their access to economic data, while the public at large tends to hold adaptive expectations A rational expectations perspective expects changes to happen very slowly, while adaptive expectations perspectives tend to expect fast change.

Which of the following is a key difference between a rational expectations perspective and an adaptive expectations perspective? The adaptive expectations perspective believes individuals have access to limited data and change expectations gradually while the rational expectations perspective is that prices change quickly as new economic information becomes available. Rational expectations are based off of historical data while adaptive expectations use real time data. Government agencies tend to have rational expectations, due to their access to economic data, while the public at large tends to hold adaptive expectations A rational expectations perspective expects changes to happen very slowly, while adaptive expectations perspectives tend to expect fast change.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

What happened first was a major policy-induced supply shock. The lockdown forced firms in several directly affected sectors, from restaurants to hotels to airlines, to halt (or at least to drastically decrease) supply. In contrast to other supply shocks analyzed earlier in the book, many firms had no choice other than to stop or decrease production. As a result of sharply lower output, and thus lower income, and of increased uncertainty, this shock had a major effect on demand, not just in the sectors directly affected by the lockdown, but also in the non-affected sectors. Thus, the outcome was a combination of a supply shock and a sharp demand response. In that context, the role of macroeconomic policy was twofold. First: While it could not do much to increase output in the affected sectors, it needed to protect the firms in those sectors from going bankrupt and the workers who lost work from going hungry. Second: It needed to limit the effect of lower demand in the non-affected…
An implication of the Rational Expectation Theory is that A) rational expectations of inflation are reformulated sooner than adaptive expectations of inflation. B) changes in how the inflation variable moves over time will not affect how expectations are formed. C) people can always accurately assess the actual rate of inflation. D) people always underestimate the future rate of inflation. E) people always overestimate the future rate of inflation.
As with demand and supply analysis, changes in the economy can cause both shifts of and movements along the short-run Phillips curve. Which of the following would cause a shift of the short-run Phillips curve? Check all that apply. An increase in government spending A decrease in short-run aggregate supply An increase in the expected inflation rate
Question 3: The Phillips Curve and Inflation Expectations Consider the following two modifications to the Phillips Curve equation we studied in class The Federal Reserve has been successful in achieving stable inflation around its target rate of 2% per year. Therefore, we may expect inflation expectations to be "anchored" in the sense that private sector agents expect inflation to eventually return to target over the long-run after any economic shocks. Suppose that inflation expectations are not adaptive, but are anchored to the inflation target as follows: π = (1-р)π + pπt-1 This equation says that firms forecast inflation as a weighted average of the inflation target and yesterday's inflation Tt-1. Note that adaptive expectations are a special case of this where the weight on yesterday's inflation p = 1. i. ii. Many economists have documented that the empirical Phillips Curve is almost flat. Therefore, suppose that the Phillips Curve does not depend on the current state of the…
Problem 4. This is an exercise about properties of expectations and variances, which we will use extensively in this course. It is closely related to SW Key Concept 2.3. Suppose you only know the following facts of variances and covariances: If X, Y, and Z are any random variables, and a and b are any constants, then I Var (X+Y) Var (aX) Cov (aX, bY) Cov (X+Y,Z) Cov(a, X) = = = = = Var (X) + Var (Y) + 2Cov (X, Y) a²Var (X) abCov (X,Y) Cov (X, Z) + Cov (Y,Z) 0. Also, you know that if X and Y are independent (I will denote that by X LY) then Cov (X, Y) = 0. For calculations below, please provide precise justification for every step / equality in terms of the given information, and avoid intuitive generalizations. (a) Use the above facts to show another related fact: If Z₁ and Z2 are random variables, and C1 and C2 are constants, then Var (c₁Z₁+c₂Z₂) = cVar (Z₁)+cVar (Z₂)+c1c22Cov (Z₁, Z₂). (b) Use any of the above facts to show that if Z₁ and Z₂ are independent, Var (Z₁ + Z2) = Var (Z₁)…
“The co-winners of [the 2011] Nobel economics prize are two Americans whose work shows how important their discipline can be to public policy. They are Thomas Sargent of New York University and Christopher Sims of Princeton University.Working independently, the two men were major proponents of the ‘rational expectations revolution’ in economics.This sometimes complex theory was explained to us by Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University…He pointed to the Keynesian economic theory that government spending stimulates an economy, which underpins the economic policies of recent years, such as President Barack Obama’s $787 billion stimulus of January 2009. ‘People are not stupid,’ Mr. Adibi said. ‘If the stimulus leads, over the long term, to higher taxes to pay back the stimulus, then people won’t spend the stimulus money; they’ll save it to pay the taxes.’” (The Orange County Register, 26 October 2011)This conclusion about…
When a shift in ________________ occurs, rational expectations hold that its impact on output and employment will only be temporary. a) aggregate supply b) wage levels c) aggregate demand d) price levels
Which of the following statements has been proposed as a benefit of passive policy making? Passive policy making utilizes the rational expectations hypothesis. Passive policy making allows for making immediate changes in response to an anticipated change in economic performance. When using passive policy making there is no tradeoff between price stability and unemployment. Passive policy making does not wait for the time lag between recognition of a problem and policy action before engaging in economic policies to stabilize the economy.
Describe the emphasis that the neoclassical perspective takes on the macroeconomy, relative to the Keynesian perspective (Chapter 12). Discuss the importance of capital per person and the role of flexible prices in their perspective. What role do rational or adaptive expectations play in flexible prices? (13.1)
Expectations often play cruel jokes on the market participants. Assume that everyone (buyers and sellers) expect future gold prices to increase. Use the four-step process of finding equilibrium, please be sure to describe what (if anything) happens to the current demand and/or supply of gold, which way(s) do the corresponding curve(s) shift, and what happens as a result to the equilibrium price and quantity of gold exchanged.