Rational expectations Assignment Essay

Rational expectations Assignment Essay

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Rational expectations Assignment Essay

The rational expectations hypothesis (REH) is a theory in economics that states that economic agents make optimal forecasts of the future based on all available information. This includes both public information, such as government policies, and private information, such as the knowledge of individual firms and consumers.

The REH was developed in the 1970s by economists such as Robert Lucas, Thomas Sargent, and Robert Barro. It was a reaction to the Keynesian theory of economics, which argued that economic agents were often irrational and made mistakes in their forecasts. The REH argued that economic agents were rational and that their forecasts were unbiased.

The REH has important implications for economic policy. If economic agents have rational expectations, then they will not be fooled by government policies. For example, if the government tries to increase output by increasing the money supply, economic agents will anticipate this and raise their prices accordingly. This will prevent the government from actually increasing output.

The REH has been controversial since its inception. Some economists argue that it is unrealistic to assume that economic agents are always rational. They argue that people often make mistakes in their forecasts, and that these mistakes can have real economic consequences.

Other economists argue that the REH is a useful tool for understanding how economies work. They argue that it can help us to predict how economic agents will respond to changes in government policy.

The REH has been used to explain a number of economic phenomena, including the Great Inflation of the 1970s. The REH argues that the Great Inflation was caused by the government’s attempts to stimulate the economy by increasing the money supply. Economic agents anticipated this and raised their prices accordingly, which led to inflation.

The REH has also been used to explain the failure of economic stabilization policies. Stabilization policies are designed to reduce the volatility of the economy. However, the REH argues that these policies are ineffective because economic agents will anticipate them and offset their effects.

The REH is a complex and controversial theory. However, it has had a significant impact on the way that economists think about economic policy.

Here are some additional points about rational expectations:

• The REH assumes that economic agents have perfect information. This means that they know everything that is known about the economy, including the government’s plans for future policy.
• The REH also assumes that economic agents are Bayesian learners. This means that they update their forecasts based on new information.
• The REH has been used to develop a number of economic models, including the Lucas model and the Barro-Gordon model.
• The REH has been criticized for being unrealistic. Some economists argue that economic agents do not have perfect information, and that they often make mistakes in their forecasts.
• Despite these criticisms, the REH remains an important theory in economics. It has helped us to understand how economies work, and it has been used to develop a number of economic models.

Here are some examples of how rational expectations can be applied to real-world economic problems:

• The REH can be used to explain why government policies often have unintended consequences. For example, if the government tries to increase output by increasing the money supply, economic agents will anticipate this and raise their prices accordingly. This will prevent the government from actually increasing output.
• The REH can also be used to explain why economic stabilization policies are often ineffective. For example, if the government tries to reduce inflation by increasing interest rates, economic agents will anticipate this and reduce their spending accordingly. This will prevent the government from actually reducing inflation.
• The REH can also be used to explain why economic crises can happen. For example, if economic agents lose confidence in the government, they may start to expect higher inflation. This can lead to a self-fulfilling prophecy, where inflation actually does increase.

The rational expectations hypothesis is a complex and controversial theory. However, it has had a significant impact on the way that economists think about economic policy. The REH has helped us to understand how economies work, and it has been used to develop a number of economic models. The REH is still a subject of debate, but it is an important theory that has shaped our understanding of the economy.

Rational expectations Assignment Essay

RUBRIC QUALITY OF RESPONSE NO RESPONSE POOR / UNSATISFACTORY SATISFACTORY GOOD EXCELLENT Content (worth a maximum of 50% of the total points) Zero points:  Student failed to submit the final paper. 20 points out of 50:  The essay illustrates poor understanding of the relevant material by failing to address or incorrectly addressing the relevant content; failing to identify or inaccurately explaining/defining key concepts/ideas; ignoring or incorrectly explaining key points/claims and the reasoning behind them; and/or incorrectly or inappropriately using terminology; and elements of the response are lacking. 30 points out of 50:  The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately.  Elements of the required response may also be lacking. 40 points out of 50:  The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples.  The answer is complete. 50 points:  The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples.  No aspects of the required answer are missing. Use of Sources (worth a maximum of 20% of the total points). Zero points:  Student failed to include citations and/or references. Or the student failed to submit a final paper. 5 out 20 points:  Sources are seldom cited to support statements and/or format of citations are not recognizable as APA 6th Edition format. There are major errors in the formation of the references and citations. And/or there is a major reliance on highly questionable. The Student fails to provide an adequate synthesis of research collected for the paper. 10 out 20 points:  References to scholarly sources are occasionally given; many statements seem unsubstantiated.  Frequent errors in APA 6th Edition format, leaving the reader confused about the source of the information. There are significant errors of the formation in the references and citations. And/or there is a significant use of highly questionable sources. 15 out 20 points:  Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented.  APA 6th Edition is used with only a few minor errors.  There are minor errors in reference and/or citations. And/or there is some use of questionable sources. 20 points:  Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented.  APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. Grammar (worth maximum of 20% of total points) Zero points:  Student failed to submit the final paper. 5 points out of 20:  The paper does not communicate ideas/points clearly due to inappropriate use of terminology and vague language; thoughts and sentences are disjointed or incomprehensible; organization lacking; and/or numerous grammatical, spelling/punctuation errors  10 points out 20:  The paper is often unclear and difficult to follow due to some inappropriate terminology and/or vague language; ideas may be fragmented, wandering and/or repetitive; poor organization; and/or some grammatical, spelling, punctuation errors 15 points out of 20:  The paper is mostly clear as a result of appropriate use of terminology and minimal vagueness; no tangents and no repetition; fairly good organization; almost perfect grammar, spelling, punctuation, and word usage. 20 points:  The paper is clear, concise, and a pleasure to read as a result of appropriate and precise use of terminology; total coherence of thoughts and presentation and logical organization; and the essay is error free. Structure of the Paper (worth 10% of total points) Zero points:  Student failed to submit the final paper. 3 points out of 10: Student needs to develop better formatting skills. The paper omits significant structural elements required for and APA 6th edition paper. Formatting of the paper has major flaws. The paper does not conform to APA 6th edition requirements whatsoever. 5 points out of 10: Appearance of final paper demonstrates the student’s limited ability to format the paper. There are significant errors in formatting and/or the total omission of major components of an APA 6th edition paper. They can include the omission of the cover page, abstract, and page numbers. Additionally the page has major formatting issues with spacing or paragraph formation. Font size might not conform to size requirements.  The student also significantly writes too large or too short of and paper 7 points out of 10: Research paper presents an above-average use of formatting skills. The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. 10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper.
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