Adaptive vs Rational Expectations Essay example

Words: 1457
Pages: 6
Open Document
Differentiate between Rational and Adaptive Expectations and clearly explain their role in focusing on future macro-economic variables
1. Rational Expectations
The theory of rational expectations was first proposed by John F. Muth of Indiana University in the early 1960s. He used the term to describe the many economic situations in which the outcome depends partly on what people expect to happen.
Rational expectations theory is an assumption in a model that the agent under study uses a forecasting mechanism that is as good as is possible given the stochastic (random) processes and information available to the agent. Rational expectations is thus a theory used to model the determination of expectations of future events by economic agents …show more content…
• Inflationary Expectations and Phillip’s Curve
The doctrine of rational expectations has been applied to deny that there exists any trade-off between inflation and unemployment, even in the short run. Economists argue that if workers can see inflation coming and if they receive compensation for it in advance, that is, if their money wages specified in a contract are adjusted for inflation so that inflation does not erode real wages, then the economy’s aggregate supply curve will not slope upwards but it will be a vertical line at the level of output corresponding to potential GNP. This is from the fact that firms have no incentive to raise production as prices rise because they compensate the workers who after learning from experience and with increasing access to relevant information, are able to anticipate future price rises accurately and demand higher money wages to compensate for the rise in cost of living. Since we derive short run Philip’s curve from the aggregate supply curve, the short run Phillip’s curve will also be vertical.

From the above graphs, if expectations are rational inflation rate can be reduced without the need for a period of high unemployment because the short run Phillips curve is vertical.

Rational expectations theorists argue that the government’s ability to manipulate aggregate demand gives it ability
Show More

Related Documents: Adaptive vs Rational Expectations Essay example

Personality Psychology and Jung Essay

“DESCRIBE AND EVALUATE CARL JUNG’S THEORY CONCERNING PERSONALITY TYPES AND SHOW HOW THEY MIGHT USEFULLY HELP A THERAPIST TO DETERMINE THERAPEUTIC GOALS”. Carl Gustav Jung was born on the 26 July 1875. He was a Swiss psychiatrist and psychotherapist who founded analytical psychology. Jung created some of the best-known psychological concepts. Jung proposed and developed the concepts of extraversion and introversion, archetypes, and the collective unconscious. His work has been influential in psychiatry…

Words 2911 - Pages 12

Rhetoric and Persuasion Essay example

here is on persuasion as a practice.” * Practice is a normative, repeated way of acting * The irony of this is that you have to practice being good at the practice * There are different interpretations for practices; normative expectations are always subject to culture. 1/15/13 Persuasion as a practice of communication * “…Designed to influence the autonomous judgment and actions of others.” * “…A form of attempted influence in the sense that it seeks to alter the ways…

Words 2718 - Pages 11

Cog Sci Final Exam Answers

Cog Sci Final Exam Study Guide * Introduction and History * Disciplines in cognitive science Psych, computer science, machine learning, statistics, cognitive neuroscience, linguistics, philosophy and education * Empiricism, nativism, behaviorism, functionalism * Empiricism - all knowledge comes from experience * Nativism – we come into the world with innate knowledge * Behaviorism - a form of associationism (empiricism) viewing the structure of the…

Words 5037 - Pages 21

Questions On Workplace Emotions And Attitudes And Behavior

Chapters four – seven inclusive 40 MCQ worth one mark each for a total of 40 marks 10 questions from each chapter 3 of 4 Short Answer Questions worth 4 marks each for a total of 12 marks 1 question from each chapter Chapter 4 Workplace Emotions, Attitudes and Stress Emotions Experiences relate to a person, object or event State of readiness - body prepares “fight or flight” Innate or learned experiences in our environment Strong emotions trigger our counsines awareness of threat or…

Words 6974 - Pages 28

Optimizong Operations Essay

Running head: OPTIMIZING ORGANIZATIONS - ORGANIZATIONAL BEHAVIOR Optimizing Organizations - Organizational Behavior Steven W. Englehart University of Phoenix Optimizing Organizations - Organizational Behavior Introduction This paper will provide an evaluation of an organization existing in the current unstable and uncertain times, and in changed and changing domestic employee constituency. Verizon will be the organization of choice because of its fiscal volatility, disruptive…

Words 3214 - Pages 13

INCOM09 NGMS VE Essay example

maurhin@gmail.com, armolina@itesm.mx 2 GSIGMA - DAS - Federal University of Santa Catarina, Florianopolis, Brazil rabelo@das.usfc.br Abstract: Next Generation Manufacturing Systems (NGMS) will support the Next Generation Manufacturing Enterprises (NGMEs). Adaptive distributed manufacturing systems seem to be a promising solution for NGMEs to provide increased levels of flexibility, reconfigurability and intelligence to respond to the highly dynamic market demands. Virtual Enterprises (VEs) are expected to…

Words 6947 - Pages 28

CNPS 427 Lecture Essay

CNPS 427 January 14, 14 Counselling as a Profession – School Counselling - client-centered Main activities and roles of Counsellors and Guidance Workers Clinical (individual, group, family/couples) Intake and assessment Therapy/guidance Writing session reports (ease notes) To have reminders of what treatments you have implemented thus far and what treatment you have in plan Follow-up Referral File matches w/ clients – communicate with other professionals (eg. Physicians) about this client (saving…

Words 8815 - Pages 36

Essay on Mental Health

Chapter One Foundations of Psychiatric Mental Health Nursing Mental Health • • The WHO defines health as a state of complete physical, mental, and social wellness, not merely the absence of disease or infirmity. Mental health is influenced by individual factors, including biologic makeup, autonomy, and independence, self-esteem, capacity for growth, vitality, ability to find meaning in life, resilience or hardiness, sense of belonging, reality orientation, and coping or stress…

Words 6381 - Pages 26

Psych 310 Notes Essay

support to athletes Clinical counseling psychologists- work with patients who have problems with social and emotional adjustments or facing difficult situations Phrenic psychology- work in correctional settings (jail, victims of crime) Psychology vs psychiatry Psychiatrists go to med school Psychologist isn’t a doctor; just a “doctor of philosophy” ; not all of them can prescribe medicine (MUST go back to school and get a masters) Pseudopsychology- horoscopes, entertainment; know the difference…

Words 5474 - Pages 22

Winter Study Guide Essay

Winter 2012 Study Guide – Comprehensive Exam (in reverse order) BUS 391 Chapter 7 Networks, Telecommunications, and Wireless Networks and Telecommunications Network Basics • Telecommunication system - enable the transmission of data over public or private networks • Network - a communications, data exchange, and resource-sharing system created by linking two or more computers and establishing standards, or protocols, so that they can work together • The three types of networks…

Words 5237 - Pages 21