What are the two theories about how expectations are formed? Discuss each
The two theories are adaptive and rational expectations. Under adaptive expectations, decision makers believe the best indicator of the future is what has happened in the recent past. Under rational expectations, decision makers will also consider the expected effects of changes in fiscal and monetary policy when formulating their expectations.
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Which of the following is NOT a result of the ability of investors to hedge?
A) increased access to funds by firms and households B) investors are more willing to invest C) increased risk aversion D) slower economic growth
In traditional Keynesian economics:
a. the aggregate supply curve is vertical. b. the aggregate supply curve is horizontal. c. the aggregate supply curve is upward-sloping. d. the aggregate demand curve is horizontal. e. the aggregate demand curve is vertical.
Exhibit 1 shows which of the following trends?
a. As the price of coffee decreases, Elizabeth demands less coffee.
b. As the price of coffee increases, Elizabeth demands less coffee.
c. As the price of coffee decreases, Elizabeth at first demands more coffee, but then demands less.
d. As the price of coffee increases, Elizabeth at first demands more coffee, but then demands less.
What is the significant feature of a preferential arrangement?
What will be an ideal response?