3. What is a significant difference between rational and adaptive expectations? A. Rational expectations rely solely onhistorical data. B. Adaptive expectations adjust predictions based on new information. C. Rational expectationsincorporate all available information, including new data. D. Adaptive expectations are always more accurate thandrational expectations. 9) Which asset demand function is legit? a) 4" = 2R² + σ - 31 + 2w b) 4" = 2R - 20 +31 + 2w cd) A = 2R-σ +31-2w d) 4" = -2R +σ +3i + 2w

The objective of the first part of the question is to understand the key differences between…

Answered: 3. What is a significant difference…

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter17: The Trade-off Between Inflation And Unemploy

Section: Chapter Questions

Problem 6DQ

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What is the difference between rational expectations and adaptive expectations?
3. Is the above model consistent with the policy ineffectiveness proposition? How does the policy implication of the model differ from that of the traditional static AD-AS model with exogenous expectations or adaptive expectations? Explain.
1.True or False: Businesses and government care only about long-run economic forecasts, because they cannot adapt policy or output to accommodate short-run fluctuations. 2.Suppose the most recent data show that the average initial weekly claims for unemployment insurance have recently increased. This change suggests a )RECCESSIONARY or EXPANSIONARY) period in the coming months? 3.Economists disagree about how quickly the economy adjusts to an aggregate demand shock. In the view of some economists, people form expectations based on present realities and change expectations gradually as their experience unfolds. Such expectations are said to be rational, unexpected, adaptive, reasonable, or great ? 4. Suppose an unanticipated increase in investment spending causes the aggregate demand curve to shift to the right (from AD1AD1 to AD2AD2). According to adherents of the adaptive-expectations theory, the unanticipated change in aggregate demand will cause the economy to move in which…
Describe the emphasis that the neoclassical perspective takes on the macroeconomy, relative to the Keynesian perspective (Chapter 12). Discuss the importance of capital per person and the role of flexible prices in their perspective. What role do rational or adaptive expectations play in flexible prices? (13.1)
If most people have rational expectations, how long will recessions last?
3. Explain how a rise in Government expending affects:3.1. The Phillips curve in the short run? How do you think are employers and employees going to react to this policy under adaptive expectations? 3.2. If the demand policy continues to apply how this is going to affect the Philips curve in the long run? 3.3. What about if the agents have rational expectations, is this policy effective?
Define rational expectations and explain the two rational expectation theories of the business cycle?? Definition of rational expectation: ......... Rational expectations theories. ...... ......
(a) One of your colleagues is looking at the yield curve expressed by the information below and asks for an explanation as to why it has the current shape. Describe the shape of the term structure presented in the table below. Explain the shape using the two forms of the “biased” expectations theory your answer should define the two forms, and explain why they are referred to as “biased”. Maturity (T) Years r(1) r(2) r(3) r(4) r(5) r(6) r(7) r(8) r(9) r(10) Spot Rate (%) 2.4711 2.4527 2.4745 2.4518 2.3187 2.2438 2.2403 2.3354 2.4373 2.8747 Please refer to attached image. (b) You are considering purchasing a bond between settlement periods with a 6% coupon rate and 4 semi-annual coupon payments remaining. There are 182 days in the coupon period and the days between the last coupon period and the settlement date is 66. What is the…
Rational vs Adaptive Expectations. How are they both different from the assumption we have used up to this point? What are the policy implications of one versus the other?
Consider the expectations adjusted Phillips’s curve and assume that expected inflation is given by πet = πt-1. Suppose that unemployment is initially equal to the natural rate and that π=10%. The central bank decides that inflation is too high and that, starting in year t, it will maintain the unemployment rate 1% point above the natural rate until the inflation rate has decreased to 2%. (a) What is the sacrifice ratio in this economy [Hint: the sacrifice ratio is the percentage of a year’s excess unemployment needed to reduce inflation by 1%. For a Philips curve given as πet − πt −1 = −α (ut − un ), the sacrifice ratio is 1/α]? (b) Compute the rate of inflation for year t, t+1, t+2, t+3, …, t+8. (c) For how many years must the central bank keep the unemployment rate above the natural rate of unemployment? Is the implied sacrifice ratio consistent with your answer to (a)?
A. What assumptions did Thomas Sargent make when he claimed that inflation is always and everywhere a fiscal phenomenon?" B. Why is it appropriate in the book's short-term model for the author to use the Phillips Curve as an Aggregate Supply curve? Does it capture the working of the labor market as well as an AS curve based, say, on sticky wages? C. Provide an example of the book's short-run model being based on "microfoundations."
Do rational expectations tend to l ook back at past experience while adaptive expectations look ahead to the future? Explain your answer.

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