What are the problems with the Rational Expectations-UIP theory?
What are the problems with the Rational Expectations-UIP theory?
Homework Answers
Ans
1 Economic agents are not as sophisticated forcasters as propounded by this theory. They quite often make forecasting mistakes as shown by recent financial crisis
2 capital and other financial assets are not considered by this. If they are taken into consideration then money has real effects also
3 flexibility of prices, wages etc as assumed by this theory is not found in reality due to wage contracts etc.
4 Govt intervention is necessary as proved by recent financial crisis. Even the champion of free market Allan Greenspan had to agree that Govt intervention is needed
Which of the following statement statements about expectations theory is true? a) Rational expectations theory does...
Which of the following statement statements about expectations theory is true? a) Rational expectations theory does not imply that people always predict inflation correctly. b) Adaptive expectations theory implies that people form expectations on the basis of all available information. C) Rational expectations theory was developed before adaptive expectations theory. D) Adaptive expectations theory identifies prediction errors at random. E) Rational expectations theory implies that people's expectations of future inflation are based on their most recent experience.
Questions regarding rational expectations, thank you!: 1.) Which of the following statements about rational expectations is...
Questions regarding rational expectations, thank you!: 1.) Which of the following statements about rational expectations is not true? a.) Rational expectations are different from adaptive expectations b.) Rational expectations are identical to optimal forecasts c.) Rational expectations may not be accurate d.) Rational expectations theory suggests that forecasts errors of expectations are sizable and can be predicted 2.) Suppose that the average growth rate of the economy has been 2%. Given a forecast of 4% growth this year, if rational...
1a) If you are explaining the theory of rational expectations to a friend, you would say...
1a) If you are explaining the theory of rational expectations to a friend, you would say that the change in an agents’ expectations is ________ and therefore ________ the effectiveness of monetary or fiscal policy. A) Say’s Law B) short-run economics C) Keynesian economic 1b) If you are explaining the theory of rational expectations to a friend, you would say that the change in an agents’ expectations is ________ and therefore ________ the effectiveness of monetary or fiscal policy. A)slow;...
How would the Keynesian, Monetarism & Rational Expectations Theory
How would the Keynesian, Monetarism & Ration Expectations Theory school of thought respond to the following:
Are rational choice theory and decision theory good normative theories of decision making? That is are...
Are rational choice theory and decision theory good normative theories of decision making? That is are they useful tools for making better decisions? What kinds of problems can we solve with decision theory? What kinds of problems can it not help us solve? Give examples and explain your reasoning
2. What is the difference between rational expectations and adaptive expectations? 3. Do neoclassical economists tend...
2. What is the difference between rational expectations and adaptive expectations? 3. Do neoclassical economists tend to focus more on long term economic growth or on recessions? Explain briefly.
What might prevent quick or immediate price adjustments with rational expectations, such that there is a...
What might prevent quick or immediate price adjustments with rational expectations, such that there is a trade-off between inflation and unemployment?
Question 39 The theory of rational expectations holds that Select the correct answer below: people form...
Question 39 The theory of rational expectations holds that Select the correct answer below: people form the most accurate possible expectations about the future they can, using all information available to them. people rationally expect recessions to persist people adapt their expectations based on the past people do not trust their expectations Question 1 Use the aggregate supply (AS) curve and aggregate demand (AD) curve below to determine the equilibrium price level and equilibrium real G DP for this economy....
Pure expectations theory Problem: The pure expectations theory, or the expectations hypothesis, asserts that long-term...
The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest rates.Based on the pure expectations theory, is the following statement true or false?The pure expectations theory assumes that investors do not consider long-term bonds to be riskier than short-term bonds.TrueFalseThe yield on a one-year Treasury security is 4.6900 %, and the two-year Treasury security has a 6.3315 %yield. Assuming that the pure expectations theory is correct, what is the...
what are the strengths of the Rational Theory Choice Social Work
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Are rational choice theory and decision theory good normative theories of decision making? That is are they useful tools for making better decisions? What kinds of problems can we solve with decision theory? What kinds of problems can it not help us solve? Give examples and explain your reasoning
2. What is the difference between rational expectations and adaptive expectations? 3. Do neoclassical economists tend to focus more on long term economic growth or on recessions? Explain briefly.
Question 39 The theory of rational expectations holds that Select the correct answer below: people form the most accurate possible expectations about the future they can, using all information available to them. people rationally expect recessions to persist people adapt their expectations based on the past people do not trust their expectations Question 1 Use the aggregate supply (AS) curve and aggregate demand (AD) curve below to determine the equilibrium price level and equilibrium real G DP for this economy....
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