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Chapter 13: Q.8 (page 332)

What is the difference between rational expectations and adaptive expectations?

Short Answer

Expert verified

The difference is whether people and firms can use all available information.

Step by step solution

01

Concept of rational and adaptive expectations.

Rational expectations refer to the most accurate possible expectations using all available information. Adaptive expectations refer to firms and people adapting their behaviors as circumstances change.

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Most popular questions from this chapter

Do neoclassical economists tend to focus more on long term economic growth or on recessions? Explain briefly.

If the economy is suffering through a rampant inflationary period, would a Keynesian economist advocate for stabilization policy that involves higher taxes and higher interest rates? Explain your answer.

Is it a logical contradiction to be a neoclassical Keynesian? Explain.

Summarize the Keynesian and Neoclassical models.
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