Lecture notes, cheat sheets
History of Economic Thought. Rational Expectations Theory (most important) Directory / Lecture notes, cheat sheets Table of contents (expand) 86. THEORY OF RATIONAL EXPECTATIONS Expectations - these are the ideas of economic agents (participants in economic activity) about what will happen or how the economic situation will develop in the future. The theory of expectations focuses on the behavior, actions, aspirations of people, which must be taken into account when developing economic policy. This is a theory of the effectiveness of economic policy, its effectiveness, the real impact on the state of the economy. Expectations - this is primarily the expectations of prices, inflation rates. Usually they are based on what changes and trends have been in the past. Consumers and businesses extrapolate past price movements to what will happen tomorrow. In other words, the picture of this year is transferred to the expected processes in the next year. The Problem of Expectations very multifaceted and quite controversial. Economic agents not only follow the information, not only receive it, but also evaluate and process this information, learn on its basis. Occupying a certain social position, having experience, skills, people react ambiguously to ongoing external events and expected changes. Hypothesis rational expectations leads to the conclusion that the government's ability to influence the economy has significantly narrowed. Short-term demand management policies are increasingly ineffective. In the long run, the level of employment and production indicators are determined by structural shifts. The reaction to decisions and turns of economic policy depends not only on assumed rational expectations. It is determined by the degree of impact on income, by the extent to which the decisions made affect the interests of people. It should not be assumed that all participants in events - firms and individuals - have sufficient information and conduct a rigorous assessment of upcoming economic events. Important information is withheld. Information costs money, it is an expensive commodity, it is not available to everyone. Nonetheless rational expectations hypothesis On the whole, he fairly notes the changes taking place in the formation of the mechanism of expectations. During major changes, the participants in the events often act in a very coordinated manner. When there was a sharp jump in oil prices (1973), its importers acted according to the scenario of rational expectations. A "maladaptive" process of gradual adaptation to the new situation has taken place in the behavior of oil consumers. Buyers reacted immediately; they acted on a model of rational behavior, without adjustment for historical data on oil prices. According to the hypothesis of rational expectations, all participants in the events are aware of what the model of future development will be. And when the state, for example, increases the money supply, entrepreneurs, trade unions, and the population immediately try to compensate for the consequences of such a step. Expectations are based not on the past, but on the true model. One of the recipes of rational expectations theorists - use of unexpected, unforeseen solutions (for example, the policy of "inflationary shock"). But even in the case of the adoption of "shock" measures, the possible consequences should be calculated. Author: Tatarnikov E.A. << Back: supply-side economics >> Forward: Externalities and the Ronald Coase Theorem We recommend interesting articles Section Lecture notes, cheat sheets: ▪ Nervous diseases. Lecture notes ▪ Operational-search activity. Crib ▪ Faculty Therapy. Lecture notes See other articles Section Lecture notes, cheat sheets. Read and write useful comments on this article. Latest news of science and technology, new electronics: The existence of an entropy rule for quantum entanglement has been proven
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