Economics: Private and Public Choice
16th Edition
ISBN: 9781337642224
Author: James D. Gwartney; Richard L. Stroup; Russell S. Sobel
Publisher: Cengage Learning US
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Chapter 15, Problem 3CQ
To determine
State the adaptive-expectation hypothesis.
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Explain the main criticisms against the Rational Expectations Hypothesis as used in economics.
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- Can you explain rational expectations in detail and elaborate Keynesian and Chicago points of views regarding rational expectations?arrow_forwarddefine adaptive expectations what is its main implicationarrow_forwardSuppose you flipped an honest coin 10 times and tails came up 10 times. You are about to toss the coin another 10 times. Complete the statements that follow to indicate how many tails you would expect in the next 10 coin flips based on adaptive expectations theory and rational expectations theory. Using adaptive expectations, you would expect tails to come up. Using rational expectations, you would expect tails to come up.arrow_forward
- If most people have rational expectations, how long will recessions lastarrow_forwardAssume that inflation expectations are formed via adaptive expectations. Which of the following are examples of equations where agents form expectations via adaptive expectations? Note: n represents inflation, y represents output and the e superscript refers to expectations. I. n+1 = 0.5T -1+ 0.5t-2 II. n°t+1= 0.57 + 0.5Tt-1 II. n°t+1= 0.57 -1 + 0.5yt !i! !3! O 1, Il and II O lonly O l and II O Il onlyarrow_forwardFully explainarrow_forward
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- 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.arrow_forwardMatch the statement to whether it describes rational expectations or adaptive expectations: A. Decisions are relatively slow to respond to new information about the economy B. If people expect it to rain a lot next month, they will start buying umbrellas today to take advantage of the relatively lower prices 1. Rational expectations 2. Adaptive expectationsarrow_forwardInflationary expectations are an important driver of the Phillips curve relationship. What are three different ways inflationary expectations might be modelled? Depict each graphically.arrow_forward
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