--%>
Assignment Help - homework help

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.

 

   Related Questions in Macroeconomics

  • Q : Microeconomic and macroeconomic effects

    Predictions which restricting international trade to protect specific industries and “infant” firms would (a) inefficiently decrease aggregate output and employment, (b) raise the market power of the protected firms and their workers, and

    		•
  • Q : What is long run supply curve Please

    Please brief the knowledge what is long run supply?

    		•
  • Q : GDP gap "The economic cost of

    "The economic cost of unemployment is measured by the GDP gap." Explain this statement. ?

    		•
  • Q : Stock option price-Strike price-Put and

    What do you mean by the following terms: a stock option price, strike price and what are a put and a call?What is the merits or demerits of purchasing stock options over stocks? What function do Mutual Funds execute with Stock Market

    		•
  • Q : Limitation of credit availability What

    What occurs to economy, when credit availability is limited and credit is made costlier? Answer: Aggregate demands falls

    		•
  • Q : Explain about the marginalism theory

    Most economists believe such that people increase an activity when they perceive the expected additional benefits as exceeding the expected extra cost, but decrease their level of an activity whenever they believe the benefits from the last few units of the activity a

    		•
  • Q : From the heterodox approach From the

    From the heterodox approach, what options does the enterprise have to produce more output? What impact do these options have on its cost structure?

    		•
  • Q : Why tax considered as revenue receipt

    Why is tax considered as revenue receipt? Answer: Since tax neither makes a liability for government nor decreases assets of the government.

    		•
  • Q : For every value of real GDP planned

    planned investment. planned saving. the difference between planned saving and actual saving. the difference between planned investment and actual saving.

    		•
  • Q : Tax shifting backward totally A tax

    A tax will be backward-shifted totally when the: (i) demand curve is vertical and the supply curve is slopes up. (ii) demand curve slopes down and the supply curve is vertical. (iii) supply curve is perfectly elastic and the demand cu

    		•