People's thinking about inflation is forward-looking in the rational expectations theory, while the adaptive expectations theory only considers past experience. a. true b. false.

Question

Business

Alonso Fletcher

27 December, 04:13

People's thinking about inflation is forward-looking in the rational expectations theory, while the adaptive expectations theory only considers past experience. a. true b. false.

+2

Answers (1)

Know the Answer?

Jameson Cox · Answer 1

a. True

Explanation:

The adaptative expectations theory assume that people base their price projections on historical data or past experience, but rational expectations assume people base their price projections on all the available information they have. Then, in addition to using historical data, they include future events analysis or conjectures. But yes, the main difference between both is that is that rational expectations theory assumes that people's thinking about price changes include forward-looking.