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The problem with the traditional macroeconomic treatment of expectations of inflation is that

Izzy122

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The problem with the traditional macroeconomic treatment of expectations of inflation is that

▸ the model is not consistent with the microeconomic assumption that individuals are rational, forward-looking people.

▸ the model assumes that individuals will merely guess at what the inflation rate will be.

▸ in the model people always assume that inflation will be zero.

▸ the way people formulate expectations in that model assumes that individuals are highly sophisticated in their economic thinking.

Textbook

Principles of Economics

Edition: 12^th

Authors: Case, Fair, Oster

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meigsfla

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More solutions for this book are available here

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