Question

Sean is forming his forecast based on the _________ model of inflation and Carlos is forming his forecast based on the __________ quantity theory adaptive expectations rational expectations expected real interest rate seignorage model of inflation.

Answer 1

The correct answer is adaptive expectations; rational expectations.

Step-by-step explanation:

Adaptive and rational expectations are forecasts that are made about the size of future economic variables.

Agents based on adaptive expectations based on past values. If one wanted to know the inflation rate for the coming years, the agents attributed previous data to lose it, which led to the use of macroeconomic models. If inflation were expected to be the same as the previous year, the desirable inflation would always be below the real one; in this case the errors will show a systematic bias.

In contrast, rational expectations assume that errors should be learned. If they show a systematic bias, the agents would make modifications to determine a more accurate forecast.