3. What is a significant difference between rational and adaptive expectations? A. Rational expectations rely solely on historical data. B. Adaptive expectations adjust predictions based on new information. C. Rational expectations incorporate all available information, including new data. D. Adaptive expectations are always more accurate than d rational expectations. 9) Which asset demand function is legit? a) 4" = 2R² + σ - 31 + 2w b) 4" = 2R - 20 +31 + 2w c d ) A = 2R-σ +31-2w d) 4" = -2R +σ +3i + 2w
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- What is the difference between rational expectations and adaptive expectations?4. Adaptive and Rational Expectations a. Suppose you are in the Adaptive Expectations world. Using the following values calculate the first five forecasts (up to the forecast for inflation in year t+5) of expected inflation. The natural rate of inflation is 1%, last year's expectation of this year's inflation is 1%, however just this year's realized inflation was 3%. Assume the error adjustment coefficient is equal to 0.8. b. Repeat part (a) except now use a lambda value of 1.1. What is the key difference you notice between the evolution of inflation forecasts of part (a) and (b)? c. Suppose you are in the Rational Expectations world. There has been a breakthrough in the semiconductor industry, making future computing both cheaper and faster for firms. What should happen to the price and quantity in the corporate bond market? Explain using rational expectations theory.Match the statement to whether it describes rational expectations or adaptive expectations: A. Decisions are relatively slow to respond to new information about the economy B. If people expect it to rain a lot next month, they will start buying umbrellas today to take advantage of the relatively lower prices 1. Rational expectations 2. Adaptive expectations
- 1. Are the implications of the rational and adaptive expectations hypotheses different in the short-run? A.No, because under both theories people will begin to anticipate more inflation as soon as they observe a move toward a more expansionary policy. B.Yes, because under adaptive expectations there is a significant time lag before people come to expect the inflation and incorporate it into their decision making, whereas the rational expectations implies that people will begin to anticipate more inflation as soon as they observe a move toward a more expansionary policy. C.Yes, because under rational expectations theory there is a significant time lag before people come to expect the inflation and incorporate it into their decision making, whereas the adaptive expectations theory implies that people will begin to anticipate more inflation as soon as they observe a move toward a more expansionary policy. D. No, because under both theories, there is a significant time…Define rational expectations and explain the two rational expectation theories of the business cycle?? Definition of rational expectation: ......... Rational expectations theories. ...... ......1. A. Harold Hotelling forecast that someday the oil industry would come to an end. For the interim period, in between his time and the end of oil, what were Hotelling's expectations for (i) consumers, (ii) oil production investors, and (iii) oil prices? B. Marion King Hubbard forecast that the oil industry would continue to expand, and then shrink. What reasoning did Marion King Hubbert use to form his expectations? C. Contrary to the forecast of Harold Hotelling, today's global oil output is greater than ever. Nevertheless, what have top Middle East oil exporting nations do to apply Hotelling's expectations into their own national oil export policies? D. Also contrary to the beliefs of Marion King Hubbert, today's global oil output is greater than ever, rather than less. Even the USA's oil output is greater today than it was when Hubbert made his forecast. Nevertheless, what have the major oil exporters of the Arabian Gulf done in the past to apply Hubbert's forecasts into their…
- 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.Assume that inflation expectations are formed via adaptive expectations. Which of the following are examples of equations where agents form expectations via adaptive expectations? Note: n represents inflation, y represents output and the e superscript refers to expectations. I. n+1 = 0.5T -1+ 0.5t-2 II. n°t+1= 0.57 + 0.5Tt-1 II. n°t+1= 0.57 -1 + 0.5yt !i! !3! O 1, Il and II O lonly O l and II O Il onlyQ.Assume that a commercial real estate whose monthly rent is TRY6,000 is to be sold at TRY4,000,000. Inflation rate has been 10% and the nominal interest rate 16% on the average for the last 15 years. The economy has grown at a real rate of 4% over the same period, so have rental revenues. If an investor has adaptive expectations, should he/she buy the real estate or not? Explain why.
- Consumers expectations do not effect demand.Select one:a. Falseb. True3. 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?4. Study Questions and Problems #4 Suppose you flipped an honest coin 10 times and tails came up 4 times. You are about to toss the coin another 10 times. Complete the statements that follow to indicate how many tails you would expect in the next 10 coin flips based on adaptive expectations theory and rational expectations theory. Using adaptive expectations, you would expect tails to come up. Using rational expectations, you would expect tails to come up.