
Do rational expectations tend to look back at past experience while adaptive expectations look ahead to the future? Explain your answer.

Whether rational expectations look back at past experience while the adaptive expectations look ahead to the future is to be determined.
Explanation of Solution
The perspective of rational expectations supports that many people incorporate excellent information about the economic events and impact of the economy. This may lead to prompt price and other important economic adjustments. On the other hand, adaptive expectations theory worked on policy in which people have precise or limited information about economic information and other aspects with the impact of economy procedures. This may lead to a slow growth of price and other important economic adjustments.
As per the definition, rational expectations seek to predict the future as accurately as possible by using past experience as a departure point. While, adaptive expectations are largely backwards looking; that is, they adapt as experience accumulates, without attempting to look at future.
Therefore the statement is incorrect.
Rational Expectation: According to the theory of rational expectations; people form the most accurate possible expectations about the future that they can, using all information available to them.
Adaptive Expectations: According to the theory of adaptive expectations; people look at past experience and gradually adapt their beliefs and behaviour as circumstances change, but are not perfect synthesizers of information and accurate predictors of the future in the sense of rational expectations theory.
Want to see more full solutions like this?
Chapter 26 Solutions
Principles of Economics 2e
Additional Business Textbook Solutions
Operations Management
Horngren's Financial & Managerial Accounting, The Financial Chapters (Book & Access Card)
Business Essentials (12th Edition) (What's New in Intro to Business)
Horngren's Accounting (12th Edition)
Financial Accounting (12th Edition) (What's New in Accounting)
- You are working at DoorDash and want to understand how delivery time affects the amount of tips received. Tips are measured in dollars, and delivery time is measured in minutes. Specifically, you run the following regression. Tips = 3 + ẞ₁Time + u 0 1 Choose all the correct answers: (a) ẞ represents the average delivery time when tips are zero from the population data 0 (b) B₁ represents the causal effect of delivery time on tips, assuming the zero conditional mean assumption holds B (c) If E[U] = 0, Tips = ß + ß> 0 (d) The model assumes a linear relationshiparrow_forwardThe following figure depicts sampling distribution of 3 distinct estimators from a population of data of 100,000 observations. (Assume that the independent and identically distributed (i.i.d.) assumption holds) Sampling Distributions of Estimators 80'0 0.02 Density 0.04 0.06 0.00 20 20 -- x= (x1+x2)/2 2(X₁+X₂+X3+X4) x= 5 x=(x1+x+x+x)/4 Population Mean 40 60 80 100 120 Estimator Value Choose all the correct answers. (a) is unbiased (b) is unbiased (c) is unbiased (d) All of the estimators are biasedarrow_forwardThe UCSC admission committee is interested in how the distance from a student's hometown to UCSC affects their likelihood of enrolling UCSC. They want to run a simple linear regression, where enroll is an indicator variable equal to 1 if a student enrolls at UCSC, and 0 if the student applied but did not enroll. distance measures the distance in miles. They tried to run a regression as follows. enroll = B + B₁ distance + u 0 1 However, the reg command suddenly stopped working, and they were only able to calculate summary statistics. They found that enroll = 0.23, distance = 54, s = =-82, s = 91, and s = 0.23 distance,enroll distance enroll Find B and B Round to two decimal places. (Just enter the number. You do not need to show your work) Write a verbal interpretation of B and Barrow_forward
- Suppose the estimated regression equation is shown as below = 17.32 -0.15 Time Tips = a. If it takes 40 minutes and a delivery man received $10, how much is the residual? (Round to two decimal places if necessary) b. One delivery took 30 minutes, and another took an hour. How much higher is the predicted tip for a delivery that took 30 minutes compared to one that took an hour?arrow_forwardChoose all the correct answers about the sampling distribution of from the regression below grocery_spending = a + a¸ income + u 0 grocery_spending = a + a income 0 1 (a) If sample variance of income is 0, then a is not defined because the denominator equals 0. (b) If both the sample size and variance of error increase, the variance of larger holding the sample variance of income constant. (c) If the Zero Conditional Mean assumption holds, а1 = а1 (d) We can derive a and a by minimizing the sum of squared residuals. a₁ becomesarrow_forwardSuppose conditional expectation of Y, monthly profit of fitness clubs given X, the number of members, is as follows. E[ Profit | Members] = -20,000 + 50Member Choose one correct answer: (a) If the number of members is less than 400, all fitness clubs make a negative profit. (b) If the number of members is exactly 400, then a fitness club breaks even (i.e., makes zero profit). (c) A fitness club with 500 members makes more profit than one with 450 members. (d) On average, profits tend to increase as the number of members increases. Find E[Profit] if E [Member] = 700. Show the steps of your calculation.arrow_forward
- What is the purpose of The Council of Economic Advisers?arrow_forwardBy taking into consideration the history of the Caribbean, the economic theories underpinning Caribbean development, as well as the features of the typical Caribbean economy, construct a hypothetical (ideal) economic model that you consider suitable for the economic development of the Caribbean. Ensure that you carefully explain/justify the reasoning behind the development of your model. NOTES: start with the models and theories discussed in this course. You should carefully examine each model. Based on this, you should be able to identify what aspects you think are relevant/necessary for the Caribbean context and which are not. Once you have the aspects of the model you deem relevant, you need to organise them into the “ideal” model of Caribbean economic development. This should include model objectives and assumptions that describe the setting and the behaviour of the economic agents, model inputs, etc. You will now need to analyse your new model. Be sure to clearly show…arrow_forwardWe want identify the effect of years of education on wage. In the dataset, educ (X) is measured in years, and wage (Y) is defined as hourly wage and measured in dollars. Specifically, we want to estimate = wage Boẞ₁educ + u Assume E(u) = E(u|educ) = 0 The regression result is shown on the table below. . reg wage edu Source SS df MS Number of obs 797 F(1, 795) 274.52 Model Residual 54070.9621 156590.357 1 54070.9621 795 196.969002 Prob F 0.0000 R-squared Total 210661.319 796 264.649898 Adj R-squared. = Root MSE 0.2557 14.035 wage Coef. Std. Err. t P>|t| [95% Conf. Interval] educ _cons 3.045239 -17.81018 .183797 2.677142 16.57 0.000 2.684455 -6.65 0.000 -23.06528 3.406024 -12.55507 Choose all correct answers 00 The sample covariance between wage and education is positive The sum of squared residuals is greater than the explained sum of squares. An individual with 12 years of education has a lower wage than an individual with 16 years of education An individual with 0 years of education…arrow_forward
- The following regression shows the relationship between government expenditure meansured in dollars and the number of public servants. • reg n_public_servants gov_exp Source SS df MS Model Residual 56219109.3 10197903.6 1 56219109.3 2,998 3401.56892 Number of obs F(1, 2998) Prob > F R-squared = = 3,000 16527.41 = 0.0000 = 0.8465 Total 66417012.9 2,999 22146.3864 Adj R-squared Root MSE = 0.8464 = 58.323 n_public_SNS Coefficient Std. err. t P>|t| [95% conf. interval] gov_exp _cons .0003063 64.35881 2.38e-06 128.56 0.000 1.864146 34.52 0.000 .0003017 60.70367 .000311 68.01394 Choose all correct answers A $10,000 increase in government expenditure is associated with an increase of approximately 3 public servants. The population covariance between government expenditure and the number of public servants is positive Suppose government expenditure is zero; then, according to the regression results, there would be no public servants. The sum of squared residuals is less than the explained sum…arrow_forwardChoose all correct answers for the following sample regression model Yi = ßo + ß1xi +ŵi ẞ₁ = B₁ u are more likely to be positive than negative Bo = Bo The sample regression model represents each data points in the sample dataarrow_forwardChoose all correct answers for the following Population Regression Line. E[YX] = Boß₁X It is assumed that E[Y[X] is a linear line If Bo=0, then the Population Regression Line is flat. The line passes through E[Y] and E[X] under the assumption of E[U]=0 With ZCM assumption, we can interpret the slope as the causal effect of X on Yarrow_forward
- Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
- Economics Today and Tomorrow, Student EditionEconomicsISBN:9780078747663Author:McGraw-HillPublisher:Glencoe/McGraw-Hill School Pub Co





