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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The Answer of 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?

Economists Have Various Theories of How Expectations May Be Formed