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Author Question: The rational-expectations hypothesis suggests that the forecasts that people make concerning future ... (Read 87 times)

Mimi

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on: Apr 19, 2019

Question 1

The problem with the traditional macroeconomic treatment of expectations of inflation is that


◦ the model is not consistent with the microeconomic assumption that individuals are rational, forward-looking people.
◦ the model assumes that individuals will merely guess at what the inflation rate will be.
◦ in the model people always assume that inflation will be zero.
◦ the way people formulate expectations in that model assumes that individuals are highly sophisticated in their economic thinking.

Question 2

The rational-expectations hypothesis suggests that the forecasts that people make concerning future inflation rates


◦ are always correct.
◦ consistently overestimate the actual rate of inflation in the future.
◦ are correct on average, but are subject to errors that are distributed randomly.
◦ consistently underestimate the actual rate of inflation in the future.
Principles of Economics ¦ Case, Fair, Oster ¦ 12th Edition
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Marked as best answer by Mimi on Apr 19, 2019

izzat

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Reply #1 on: Apr 19, 2019
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Mimi

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Reply 2 on: Apr 19, 2019
Thanks for the timely response, appreciate it

bulacsom

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Reply 3 on: Yesterday
Wow, this really help

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