ECON 2035 : ECON 2035 Exam 2
Document Summary
Financial crisis: finncial crisis that started in august 2007 led to one of the worst bear markets in 50 years, downward revision of growth prospects: v, increased uncertainty: /, gordon model predicts a drop in stock prices. Adaptive expectations: the assumption that people make forecasts of future values of a variable using only past values of the variable. In these markets, people with better forecasts of the future get rich: the application of the theory of rational expectations to financial markets is thus particularly useful. Pe = pof (t+1) -> re = rof: rof = r* Econ 2035 2 chapter 8 9/29/2014 8:32:00 pm. Is ppp a complete theory of exchange rates: three real-world complications, not all products can be traded internationally, products are differentiated, governments impose barriers to trade. Factors that affect exchange rates in the long run (table 1: relative price level.
