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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

What is a major difference between adaptive and rational expectations? Give an example of each.

To determine

The difference between adaptive and rational expectations.

Explanation

In rational expectation, the decisions on future inflation expectations are made on the basis of all available information. Therefore, the nature of policies whether it is anticipated or unanticipated affects the future predictions in rational expectation. However, in the adaptive expectation, future predictions rest upon the recent trends in inflation...

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