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Adaptive expectations are formed when people use economic models to predict the future. True or False

Adaptive expectations are formed when people use economic models to predict the future.

True or False

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Answer #1

The above statement is definately True .  Mechanism of adaptive expectations formation is more frequently used in economics. According to this mechanism of adaptive expectations agents revise their expectations in each period according to the degree of error in their previous expectations—hence the name adaptive expectations. The speed at which the expectations adjust to past error is called the coefficient of adaptations. This coefficient may fluctuate between zero and one.Adaptive expectations are effective when the variable being forecast is reasonably stable, but adaptive expectations’ are of little use in forecasting trends. Moreover, there may be additional or supplementary information available to the forecaster which is a highly relevant to the variable being forecast

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