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Adaptive expectations: assumes peoples' behaviour is totally correlated to past behaviour. History is the dominant factor in choice.
Rational expectations: assumes people's behaviour is mostly correlated to acquisition and use of any information about the choice at hand. Rationality is the dominant factor in choice.
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What is the difference between rational expectation and adaptive expectation?
Rational expectation are expectation formed by individuals based on past experience and on their predictions about the effects of present and future policy actions. Adaptive expectations are based only on the past and expected inflation changes slowly. by marowe f.m.
If people have rational expectations they will never make forecasting errors and the economy will always remain at the full-employment level of output Comment on this statement?
The statement is wrong. Rational expectations hypotesis says people do not make errors in a systematic form. People make errors, but are able to correct them instead of repeat them.
What factors do individuals consider when making decisions about their investments, assuming they have rational expectations?
Individuals consider various factors when making investment decisions, assuming they have rational expectations. These factors include the potential return on investment, the level of risk involved, their investment goals, time horizon, market conditions, and their own risk tolerance. By carefully evaluating these factors, individuals can make informed decisions that align with their financial objectives.
When the federal reserve reduces the money supply what happens to the GDP and price level?
The reduction in the money supply increases the price level, causes deflation, and may increase or decrease the GDP depending on the level of rational expectations.
The efficient market theory requires what?
According to theory, the efficiency market theory requires that the agents involved have rational expectations, and that the population is correct on average; whenever relevant, new information appears, the agents will update their information appropriately.
Adaptive expectations hypothesis?
why are adaptive expectations inefficient
What is the difference between rational expectation and adaptive expectation?
Rational expectation are expectation formed by individuals based on past experience and on their predictions about the effects of present and future policy actions. Adaptive expectations are based only on the past and expected inflation changes slowly. by marowe f.m.
What has the author Laurence Broze written?
Laurence Broze has written: 'Reduced forms of rational expectations models' -- subject(s): Macroeconomics, Mathematical models, Rational expectations (Economic theory)
What has the author Patrick H McAllister written?
Patrick H. McAllister has written: 'Rational behavior and rational expectations'
What has the author Charles H Whiteman written?
Charles H. Whiteman has written: 'Linear rational expectations models' -- subject(s): Economics, Mathematical models, Rational expectations (Economic theory)
What has the author Enrico Minelli written?
Enrico Minelli has written: 'Rational expectations in games' -- subject(s): Mathematical models, Equilibrium (Economics), Game theory, Rational expectations (Economic theory)
How do rational number differ from integers?
Rational numbers include integers, but they also include fractions.
What has the author Thomas Lindh written?
Thomas Lindh has written: 'Essays on expectations in economic theory' -- subject(s): Rational expectations (Economic theory)
What has the author David K H Begg written?
David K. H. Begg has written: 'The economics of floating exchange rates' 'The rational expectations revolution in macroeconomics' -- subject(s): Macroeconomics, Rational expectations (Economic theory) 'Financing government expenditure'
How do rational numbers differ from irrational numbers?
Rational numbers are numbers that can be written as a fraction. Irrational numbers cannot be expressed as a fraction.
How the needs and expectations of different types of customers can differ?
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How did German expectations at the end of the war differ from the realities of the Treaty of Versailles?
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