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Author Question: The primary argument against the rational-expectations assumption is that (Read 62 times)

abarnes

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on: Apr 19, 2019

Question 1

The argument in favor of rational expectations is that


◦ people will continue to acquire information as long as the marginal benefit of that information is positive.
◦ individuals have a very good idea of what to expect from the government in terms of monetary policy but not fiscal policy.
◦ it is costless for individuals and firms to form rational expectations.
◦ if expectations were not rational, there would be unexploited profit opportunities available.

Question 2

The primary argument against the rational-expectations assumption is that


◦ the costs of formulating rational expectations are very low.
◦ it requires households and firms to know too much.
◦ it assumes that unexploited opportunities for profit persist in the economy.
◦ people expect certain outcomes from the government's policy actions.
Principles of Economics ¦ Case, Fair, Oster ¦ 12th Edition
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Marked as best answer by abarnes on Apr 19, 2019

frejo

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Reply #1 on: Apr 19, 2019
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abarnes

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Reply #2 on: Apr 19, 2019
Excellent


frejo

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Reply #3 on: Apr 19, 2019
Great! Please up vote :D


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