Explain the difference between how adaptive expectations are formed and how rational expectations are formed. How does this difference affect the speed at which economic variables are expected to change?
Adaptive expectations are based on observations of past experiences. Rational expectations are based not only on what has occurred in the past, but also on predictions about the effects of present and future policy actions. Expectations that are formed rationally change more quickly than expectations that are formed adaptively.
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A combination of declining real GDP and rising price level is referred to as
A) a trough. B) deflation. C) stagflation. D) a depression. E) an expansion.
A financial intermediary's main function is to match ________ with excess funds to ________ with a shortage of funds
A) firms; insurance companies B) savers; borrower C) borrower; savers D) governments; households
A central bank may be reluctant to see its currency appreciate because
A) rising prices of imports will contribute to inflation. B) falling prices of exports will contribute to inflation. C) the country's goods may become uncompetitive in world markets. D) the country's monetary base will increase.
Today, the most common exchange rate arrangement in the world is
A) the fixed exchange rate system. B) the gold standard system. C) the managed floating system. D) the freely floating exchange rate system.