Another characteristic of rational expectations economics is that people make good use of all information, including the
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Another characteristic of rational expectations economics is that people make good use of all information, including the information provided by economic models. Suppose I propose the following model: “In years divisible by 7, the economy will go into a recession.” What is wrong with this model from the rational expectations point of view (assuming people can take steps to avoid the costs of a recession —for example, by lowering wages to prevent unemployment)?
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