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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

When policy is unanticipated, what difference is there between the natural rate theory built on adaptive expectations and the natural rate theory built on rational expectations?

To determine

The difference between rational and adaptive expectation in the natural rate theory when the policy is unanticipated.

Explanation

If the policy is unanticipated, then there is no difference between the natural rate theory built on rational and adaptive expectation. Suppose the policy action by fed is unanticipated, then people cannot identify the cha...

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