Economists Have Various Theories of How Expectations May Be Formed

question 34

Essay

Economists have various theories of how expectations may be formed.The textbook discusses the theory of rational expectations.Another possibility is that people have adaptive expectations, which means they form their expectations based on recent history.(For example, people might guess that the inflation rate next year will be the same as it was this year.) Would it be easier to eliminate inflation when people have rational expectations or when they have adaptive expectations?

Identify and describe the Big Five personality traits and their implications.

Recognize the most replicable personality types and the limitations of typological categorization.

Explain the factor analysis approach to personality and its significance.

Critically assess the validity and application of personality assessments such as the Myers-Briggs Type Indicator.

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Definitions:

DCF Method

Discounted Cash Flow Method; a valuation technique used to estimate the attractiveness of an investment opportunity, based on future cash flows and discounted present values.

Constant Growth Stocks

Stocks of companies expected to grow at a steady, predictable rate, often used in the Gordon Growth Model for valuation.

Required Rate

The minimum annual percentage return on an investment that an investor aims for, considering the investment's risk.

Retaining Earnings

Profits that a company reinvests in itself instead of paying out to shareholders as dividends.