Question

Adaptive expectations assumes that individuals A) can accurately predict the future. B) base predictions on random events (i.e., animal spirits). C) form their predictions of macroeconomic variables randomly. D) use all available information in predicting the future. E) none of the above

Answer 1

The answer is: E. None of the above.

Step-by-step explanation:

Adpative expectations is a theory commonly used in economic studies. It states that people try to predict the future based on past events. For example, they will try to predict next year's inflation rate based on the rate it increased last year. According to this theory, their predictions are not based on random events or random macroeconomic variables, not even in other existing information.

This theory has been discussed by many other economists, it has been said that it is too simplistic and that people, in fact, can take into account many other factors and form rational expectations of the future, therefore, human behavior in the real world, cannot be explained only in terms of adaptive expectations that people form of the future.