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?

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Definitions:

Conflict

A serious disagreement or argument, typically a protracted one, between individuals, groups, or nations.

Esteem Support

Emotional or affirmational support that boosts an individual's self-esteem and confidence, often provided by friends, family, or mentors.

Motivational Support

Emotional or practical encouragement aimed at helping an individual achieve their goals or overcome challenges.

Scapegoating

The practice of unfairly blaming an individual or group for problems or negative outcomes, often as a way to divert attention from the true causes.