Question

Suppose a change in the way a variable moves such that it is much

smaller

than before. If adaptive expectations accurately represent how people form​ expectations, then the difference between the variable and its expected value is

A. Greater than zero

B. Less than zero

C. Zero on average

Answer 1

Ans B. Less than zero

Suppose a change in the way a variable moves such that it is much smaller than before. If adaptive expectations accurately represent how people form​ expectations, then the difference between the variable and its expected value is Less than zero.

On the other hand, Suppose a change in the way a variable moves such that it is much larger than before. If adaptive expectations accurately represent how people form​ expectations, then the difference between the variable and its expected value is Greater than zero.