Adaptive expectations & Rational expectations

Question:

Compare and contrast 'adaptive expectations' (Hubbard uses adaptive expectations) and 'rational expectations' in modeling expectations.

Answer:

Adaptive expectations theory assumes that people expect the inflation rate next year to be equal to the inflation rate last year. The rational expectation hypothesis, on the other hand, assumes that economic agents use all the available information to make an expectation about the next year's inflation rate. So the rational expectation approach make the inflation expectation to be more information based and not merely by observing the last year's inflation and expect it to persist next year.

View Complete Question

Related Questions in Macroeconomics

Q : Relevance of matter-SWOT analysis

Relevance of matter: Relevance of matter is very much important while choosing any goals. Are the goals relevant to the vision of the company? A goal of having maximum number of customers seems fantabulous, however at the same time bank needs to make

Q : List Which of the following lists

Which of the following lists includes only capital resources (and ther Which of the following lists includes only capital resources (and therefore no labor or land resources)?

Q : Plan and non-plan expenditure Write a

Write a brief note on plan and non-plan expenditure of the government with illustration. Answer: Plan Expenditure

Q : National income Gross domestic capital

Gross domestic capital formation is always greater than gross fixed capital formation

Q : Problem on Imperfect information

Imperfect information at times causes consumer’s attempts to maximize their contentment to fail since: (i) Prospects are imperfectly realized, and trial-and-error prototypes can lead to mistakes. (ii) Sellers might exploit asymmetric information

Q : Problem on superior or luxury goods The

The Income effects will be most strongly positive for: (1) Normal goods. (2) Necessities. (3) Superior or luxury goods. (4) Substitutes and much negative for the complements. Find out the right answer from the above options.

Q : Backward shifting of incidence tax When

When firms bear the legal incidence of a tax, this is backward shifted while: (1) firms burden consumers by raising their prices. (2) the tax burden is borne by workers in the form of lower wages. (3) resource suppliers seek higher factor payments to

Q : Explain reason why land Land, capital

Land, capital and labor are all scarce since: (1) advertising mainly over stimulates human wants. (2) once employed they cannot be used again. (3) each productive resource needs a monetary return for its employ. (4) inheritance under a capitalism prot

Q : Microeconomic analysis emphasizing to

Family member to macroeconomics, the microeconomic analysis: (w) was emphasized through economists prior to the Great Depression. (x) is related with the effects of extensive government policies. (y) focuses upon economic development

Q : Problem on value of imports The balance

The balance of trade demonstrates a deficit of Rs 300 crore. The values of exports are Rs 500 crore. Determine the value of imports? Answer:

Discover Q & A

Leading Solution Library

Avail More Than 1433977 Solved problems, classrooms assignments, textbook's solutions, for quick Downloads

No hassle, Instant Access

Start Discovering

18,76,764

1946781
Asked

3,689

Active Tutors

1433977

Questions
Answered

Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!

Submit Assignment