Under what circumstances might it be "rational" to rely on adaptive expectations?
What will be an ideal response?
Adaptive expectations are based on the past. An adaptive expectation is irrational only if there is reason to believe that it is possible to formulate a better guess. Though one can never be sure that the trends of the past will continue unaltered into the future, it may not be possible — without undue expense — to acquire enough information and understanding to justify the conclusion that the known trend will fail to persist. If the known trend has been reliable, there is no obvious reason to doubt its persistence, and there is no inexpensive way to conduct a forward-looking assessment, the adaptive expectation is rational.
You might also like to view...
Suppose that you are spending two hours a day studying economics, and your grade is 85 percent. You want a higher grade and decide to study for an extra hour a day. As a result, your grade rises to 90 percent. Your marginal benefit is the
A) 5 point increase in your grade minus the opportunity cost to you of spending the hour studying. B) extra hour per day you spend on studying. C) 5 point increase in your grade. D) three hours per day you spend on studying.
Economic reasoning is based on the premise that:
a. all decisions or actions are costless. b. only non-economic decisions or actions have a cost associated with them. c. only economic decisions or actions have a cost associated with them. d. all decisions and actions have a cost associated with them.
The goal of fiscal policy after the Great Depression was to: a. balance federal budget
b. manipulate aggregate demand and supply to fight unemployment. c. influence aggregate demand. d. influence aggregate supply. e. push the aggregate demand and supply curves to the right.
Recall the Application about the merger of Sirius Satellite Radio and XM Satellite Radio to answer the following question(s).Recall the Application. After the merger of Sirius Satellite Radio and XM Satellite Radio, the new firm, Sirius XM, would be classified as a:
A. natural monopoly. B. monopoly, but not a natural monopoly. C. public utility. D. duopoly.