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define adaptive expectations what is its main implication
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Solved in 2 steps
- Explain the term “Rational Expectations” as Thaler used in the first chapter of Misbehaving.If the economy has rational expectations and the model is sticky price model. Could you explain why the following statement true in macroeconomics?Do rational expectations tend to l ook back at past experience while adaptive expectations look ahead to the future? Explain your answer.
- Would it make sense to argue that rational expectations economics is an extreme version of neoclassicaleconomics? Explain.What is the theory of rational expectations? How does it apply to the debate about the trade off between inflation and unemployment?Can you explain how positive and negative supply shocks affect market equilibrium in terms of price and quantity?