A person is calculating his permanent income by adaptive expectations.Last year's permanent income was 38,000,this year's actual income is 44,000,and j = 0.25.This year his permanent income is
A)39,500.
B)42,500.
C)59,000.
D)20,500

Question

Quizplus · Accepted Answer

The formula for calculating permanent income using adaptive expectations is: Permanent Income this year = Last year's permanent income + j * (This year's actual income - Last year's permanent income). Plugging in the values: 38,000 + 0.25 * (44,000 - 38,000) = 38,000 + 0.25 * 6,000 = 38,000 + 1,500 = 39,500.

A Person Is Calculating His Permanent Income by Adaptive Expectations