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

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Answer 1

Textbook Question

Chapter 26, Problem 1SCQ

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

Expert Solution & Answer

To determine

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.

Economics Concept Introduction

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.

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Suppose you are working as a manager of an organic grocery store and want to analyze how income affects grocery spending. In the dataset, grocery_spending measures the amount spent on groceries in dollars, and income represents individual income, also measured in dollars. The following regression results present estimates from two different specifications. reg grocery_spending income Source SS df MS Model Residual 20685432.5 29227282.9 1 20685432.5 9,998 2923.31295 Number of obs = F(1, 9998) Prob > F R-squared => 10,000 7076.02 0.0000 Total 49912715.4 9,999 4991.77071 Adj R-squared = Root MSE = 0.4144 54.068 grocery_sp~g Coefficient Std. err. t P>|t| [95% conf. interval] income _cons 0033984 .0000404 84.12 2113.24 1.144063 1847.14 0.000 0.000 .0033192 2110.998 .0034776 2115.483 ⚫ gen Inincome-In (income) .reg grocery_spending Inincome Source SS df MS Number of obs = 10,000 Model Residual 24748934.7 25163780.7 9,998 1 24748934.7 2516.88144 F(1, 9998) Prob > F R-squared = 9833.17 " =…

Both the level-level and level-log regression models presented above use the same number of observations. What does this suggest about the variables used in each model?

Calculate the R-squared value for the missing section. (Round totwo decimal places. You do not need to show your work.) Based on this answer, which model specification provides a better fit to the data? Why? On the level-level model specification, what is the null hypothesiswe would like to reject? Briefly describe the null hypothesis in words.

Answer 2

Textbook Question

Chapter 26, Problem 1SCQ

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

Expert Solution & Answer

To determine

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.

Economics Concept Introduction

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.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Textbook Question

Chapter 26, Problem 1SCQ

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

Expert Solution & Answer

To determine

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.

Economics Concept Introduction

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?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Textbook Question

Chapter 26, Problem 1SCQ

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

Expert Solution & Answer

To determine

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.

Economics Concept Introduction

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?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

Expert Solution & Answer

To determine

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.

Economics Concept Introduction

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.

Answer 8

Expert Solution & Answer

To determine

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.

Economics Concept Introduction

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.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

To determine

Whether rational expectations look back at past experience while the adaptive expectations look ahead to the future is to be determined.

Answer 12

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.

Answer 13

Economics Concept Introduction

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.

Answer 14

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

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