--%>
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 : Value added technique for national

    What is the alternative name of value added technique of estimating national income? The alternative name of value added technique of estimating national income is production method.

    		•
  • Q : Conditions through which the supply

    What are the conditions through which the supply curve will shift?

    		•
  • Q : When price of demand curve modified

    Whenever the price of a good all along a demand curve is modified since of a change in supply, the substitution effect is the modification in purchases of a good which result from a change merely in: (1) The associative price of that good. (2) Consumer tastes and prio

    		•
  • Q : Merger and acquisition of firms

    Question: Suppose firm 1 and firm 2 merge. Call the new firm A. It has output xA and profit πA. Suppose there is Cournot competition after the merger. For now, we assume that the marginal cost of Firm A, the mer

    		•
  • Q : The European debt crisis Quetion:

    Quetion: Describe the present economic crisis situation in Europe.   Why has it been so difficult for the Europeans to find a solution to this problem?   Comment on what implications the crisis may have for the rest of the

    		•
  • Q : Define Devaluation Devaluation means

    Devaluation means decrease in the external value of a country’s currency as an aware policy measure adopted by the Government of a country. In another words, we make our currency less costly in terms of foreign currency. This builds our goods ch

    		•
  • Q : Subjective worth of Consumer Surplus

    The consumer gains from being capable to purchase at a single price rather than paying all that the particular quantity of the good is subjectively worth are: (i) Adverse selections. (ii) Market exploitation. (iii) Consumer surpluses. (iv) Moral hazards.

  • Q : Problem on equivalent Consumer Surplus

    Tom reimburses $5.00 for a ticket to see a present hit movie. If Tom was willing to reimburse up to $7.00 for that ticket, his consumer surplus equals: (1) $5.00 (2) $2.00 (3) $7.00 (4) Tom does not receive any consumer surplus as he purchased the ticket.

  • Q : Monetary policy-how is it decided The

    The practice explores how monetary policy influences the economy and the type of factors which are significant in finding out the Monetary Policy Committee’s decision.

    		•
  • Q : Article on Agriculture and economic

    Read the article on blackboard in the assignments area, John McCallum "Agriculture and economic development in Ontario and Quebec until 1870", Gordon Laxer, ed. Perspectives on Canadian Economic Development: Class, Staples, Gender and Elites (Toronto: Oxford Universit

    		•