John and Angel are having an argument over future inflation rates.John thinks the rate will be 3%,because inflation has not exceeded that rate in more than a decade.Angel points out that the chairman of the Federal Reserve testified before Congress last week that he thinks the unemployment rate is too far above its natural rate and thus that the economy should be stimulated.John is using _____ expectations and Angel is relying on _____ expectations.

Question

Quizplus · Accepted Answer

John is using adaptive expectations because he is basing his prediction on past trends. Angel is using rational expectations because she is incorporating current information, specifically the testimony from the chairman of the Federal Reserve.

John and Angel Are Having an Argument Over Future Inflation