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Briefly Explain the Two Major Models of Expectations Formation

question 96

Essay

Briefly explain the two major models of expectations formation. What are the implications for macroeconomic policy of assuming one model or the other?


Definitions:

TVC

Total Variable Cost, which refers to the total of all costs that vary with the level of output or production activity.

Short Run

A period in economics during which at least one input, such as plant size, is fixed, and only some factors of production can be varied.

TC

Total Cost, which refers to the aggregate amount of expenses incurred by a business in producing goods or services.

AVC

Average Variable Cost, the total variable costs divided by the quantity of output produced, representing the variable cost per unit of output.

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