Principles of Macroeconomics 2e
2nd Edition
ISBN: 9781947172388
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Textbook Question
Chapter 13, Problem 1SCQ
Do rational expectations tend to look back at past experience while adaptive expectations look ahead to the future? Explain your answer.
Expert Solution & Answer
To determine
Whether rational expectations look back at past experience while the adaptive expectations look ahead to the future is to be determined.
Explanation of Solution
The perspective of rational expectations supports that many people incorporate excellent information about the economic events and impact of the economy. This may lead to prompt price and other important economic adjustments. On the other hand, adaptive expectations theory worked on policy in which people have precise or limited information about economic information and other aspects with the impact of economy procedures. This may lead to a slow growth of price and other important economic adjustments.
As per the definition, rational expectations seek to predict the future as accurately as possible by using past experience as a departure point. While, adaptive expectations are largely backwards looking; that is, they adapt as experience accumulates, without attempting to look at future.
Therefore the statement is incorrect.
Economics Concept Introduction
Rational Expectation: According to the theory of rational expectations; people form the most accurate possible expectations about the future that they can, using all information available to them.
Adaptive Expectations: According to the theory of adaptive expectations; people look at past experience and gradually adapt their beliefs and behaviour as circumstances change, but are not perfect synthesizers of information and accurate predictors of the future in the sense of rational expectations theory.
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Chapter 13 Solutions
Principles of Macroeconomics 2e
Ch. 13 - Do rational expectations tend to look back at past...Ch. 13 - Legislation proposes that the government should...Ch. 13 - Would it make sense to argue that rational...Ch. 13 - Summarize the Keynesian and Neoclassical models.Ch. 13 - Does neoclassical economics focus on the long term...Ch. 13 - Does neoclassical economics view prices and wages...Ch. 13 - What shape is the long-nm aggregate supply curve?...Ch. 13 - What is the difference between rational...Ch. 13 - A neoclassical economist and a Keynesian economist...Ch. 13 - Do neoclassical economists tend to focus more on...
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