Question 1

If households have information that monetary policy is likely to change in the future,that information will play a role in forming ________.

Accepted Answer

When households have information regarding future changes in monetary policy, they are likely to form rational expectations. Rational expectations are based on all available information, including information about future policy changes that can affect economic outcomes. Therefore, the best choice is B, rational expectations.

Question 2

The "rational expectations revolution" refers to a substantial change in the thinking of ________.

Accepted Answer

The "rational expectations revolution" refers to a shift in the thinking of macroeconomists, particularly in the 1970s and 1980s. It argues that individuals and firms use all available information and past experiences to form expectations about future economic outcomes, rather than relying solely on past data. This revolutionized the way economists think about how people make decisions and how markets behave.

Question 3

Expectations about the future will always be accurate if formed under ________.

Accepted Answer

Expectations about the future, even when formed under theories like rational or adaptive expectations, can never be guaranteed to be always accurate due to the inherent unpredictability of future events and the limitations of any theoretical framework in fully capturing the complexities of real-world dynamics.

Question 4

Rational expectations are more accurate than adaptive expectations,________.

Accepted Answer

Rational expectations are considered more accurate on average because they incorporate all available information, including the understanding of how economies work, to predict future events. Unlike adaptive expectations, which rely on past trends to forecast the future, rational expectations adjust for new information and anticipate changes, making them more accurate on average.

Question 5

Rational expectations theory suggests that ________.

Accepted Answer

Rational expectations theory states that individuals make informed decisions based on available information, which includes policy announcements. Therefore, policy announcements can impact behavior according to this theory.

Question 6

Rational expectations theory suggests that ________.

Accepted Answer

Rational expectations theory suggests that economic agents will adjust their expectations based on available information, but if that information has already been anticipated, it will not have an impact on their decision-making. This is because rational economic agents will have already factored in the information into their expectations.

Question 7

Forecasts based on the extrapolation of observed trends and relationships are likely to be accurate,if ________.

Accepted Answer

Forecasts based on extrapolation are more likely to be accurate if changes in expectations are properly considered, as expectations can significantly influence economic behavior and outcomes.

Question 8

Economists use ________ to forecast economic activity and to evaluate policy options.

Accepted Answer

Macroeconometric models are a tool widely used by economists to forecast economic activity and to evaluate policy options. These models are mathematical representations of the economy that use statistical techniques to analyze economic data and to project its future behavior. They help economists to understand the relationships among different economic variables and to predict the effects of changes in policy settings or external shocks on the economy. Macroeconometric models are complex, but they provide valuable insights into economic policy decisions.

Question 9

The notion that expectations will be identical to optimal forecasts using all available information is known as ________.

Accepted Answer

Rational expectations theory assumes that people make use of all available information, including past experiences to form accurate expectations about the future. Thus, expectations will be identical to optimal forecasts using all available information.

Question 10

Both adaptive expectations and rational expectations are prone to error (a discrepancy between the expectation and the actual experience).In each case,how does error affect the formation of new expectations?

Accepted Answer

The answer of Both adaptive expectations and rational expectations are...

Question 11

Adaptive expectations are formed ________.

Accepted Answer

Adaptive expectations are formed based on past experiences and historical data, adjusting expectations as new experiences occur.

Question 12

Assume that prices have risen in a given economy by an average of 5 percent over the last nine years.If consumers base their expectations about future price movements on that knowledge alone their forecasts rely on ________.

Accepted Answer

If consumers base their expectations solely on past information and assume that prices will continue to rise at the same rate, they have adaptive expectations. This approach assumes that past experiences are a valid guide for future expectations.

Question 13

An economic policy has a decent chance of working as intended,if ________.

Accepted Answer

The answer of An economic policy has a decent chance...

Question 14

Suppose you need an estimate of future inflation (to decide,for example,whether a particular security is a good investment).How might you formulate a rational expectation?

Accepted Answer

The answer of Suppose you need an estimate of future...

Question 15

Robert Lucas spurred the rational expectations revolution in ________.

Accepted Answer

Robert Lucas spurred the rational expectations revolution in the 1970s, particularly with his paper "Expectations and the Neutrality of Money" (1972).

Question 16

________ rational expectations,________.

Accepted Answer

Rational expectations theory assumes that individuals form their expectations about future economic events based on all available information, including their past experiences. This assumption has been recognized by many economists and is not something that macroeconomists have invented.

Question 17

Under what circumstances might it be "rational" to rely on adaptive expectations?

Accepted Answer

The answer of Under what circumstances might it be "rational"...

Question 18

The danger in using data to estimate the consequences of a proposed policy is that ________.

Accepted Answer

The danger in using data to estimate the consequences of a proposed policy is that the proposed policy, if implemented, might cause unforeseeable changes in the relationships that were in operation when the data were produced. Therefore, the data might not accurately reflect the actual consequences of the policy.

Question 19

A prediction based on rational expectations ________.

Accepted Answer

Rational expectations are based on the assumption that individuals use all available information, including past experience, to form their expectations of future events. However, this does not guarantee that their predictions will always be accurate. Market conditions can change rapidly, and unforeseen events can impact expectations. Therefore, while rational expectations may be more accurate overall, they are not infallible.

Question 20

New information ought not to influence economic decision-making if ________.

Accepted Answer

If the information has already been anticipated, it would have been priced into the market and would not cause a change in economic decision-making. This is known as rational expectations, where individuals incorporate all available information into their decision-making. Monetary and/or fiscal policy changes may affect economic decision-making, but only if they are unexpected and not already priced into the market.

Quiz 21: The Role of Expectations in Macroeconomic Policy

If households have information that monetary policy is likely to change in the future,that information will play a role in forming ________.

The "rational expectations revolution" refers to a substantial change in the thinking of ________.

Expectations about the future will always be accurate if formed under ________.

Rational expectations are more accurate than adaptive expectations,________.

Rational expectations theory suggests that ________.

Rational expectations theory suggests that ________.

Forecasts based on the extrapolation of observed trends and relationships are likely to be accurate,if ________.

Economists use ________ to forecast economic activity and to evaluate policy options.

The notion that expectations will be identical to optimal forecasts using all available information is known as ________.

Both adaptive expectations and rational expectations are prone to error (a discrepancy between the expectation and the actual experience).In each case,how does error affect the formation of new expectations?

Adaptive expectations are formed ________.

Assume that prices have risen in a given economy by an average of 5 percent over the last nine years.If consumers base their expectations about future price movements on that knowledge alone their forecasts rely on ________.

An economic policy has a decent chance of working as intended,if ________.

Suppose you need an estimate of future inflation (to decide,for example,whether a particular security is a good investment).How might you formulate a rational expectation?

Robert Lucas spurred the rational expectations revolution in ________.

rational expectations,.

Under what circumstances might it be "rational" to rely on adaptive expectations?

The danger in using data to estimate the consequences of a proposed policy is that ________.

A prediction based on rational expectations ________.

New information ought not to influence economic decision-making if ________.