During a time when the inflation rate is increasing each year for ...

[kamilo84]

During a time when the inflation rate is increasing each year for a number of years, are adaptive expectations or rational expectations likely to give the more accurate forecasts? Briefly explain.
 
  What will be an ideal response?

Question 2

The automatic budget surpluses and budget deficits that occur in the federal budget over the business cycle
 
  A) stabilize the economy. B) destabilize the economy.
  C) decrease potential GDP. D) increase potential GDP.

[kjo;oj]

Answer to Question 1

Rational expectations are likely to give the more accurate forecasts. When inflation is increasing over time, adaptive expectations that rely only on past information will always lead to a lower inflation forecast than actual inflation.

Answer to Question 2

A