ECS4861
Assignment 1 2025
Unique #:
Due Date: 8 May 2025
Detailed solutions, explanations, workings
and references.
+27 81 278 3372
, Question 1
Which of the following describes how people acquire information according to the
rational expectations hypothesis?
a. They ignore historic data because this is already reflected in prices.
b. They ignore publicly available information because this is already
reflected in prices.
c. They search for information up to the point where the expected
marginal cost of further information equals the expected marginal
value thereof.
d. Only new information is taken into account in decision-making.
Explanation: According to the rational expectations hypothesis, people gather
information until the cost of collecting more exceeds the benefit they expect to
gain from it.
Question 2
How do new classical models differ from orthodox monetarism?
a. New classical models assume rational rather than adaptive
expectations.
b. New classical models do not permit 'money illusion', even in the short
run.
Varsity Cube 2025 +27 81 278 3372
Assignment 1 2025
Unique #:
Due Date: 8 May 2025
Detailed solutions, explanations, workings
and references.
+27 81 278 3372
, Question 1
Which of the following describes how people acquire information according to the
rational expectations hypothesis?
a. They ignore historic data because this is already reflected in prices.
b. They ignore publicly available information because this is already
reflected in prices.
c. They search for information up to the point where the expected
marginal cost of further information equals the expected marginal
value thereof.
d. Only new information is taken into account in decision-making.
Explanation: According to the rational expectations hypothesis, people gather
information until the cost of collecting more exceeds the benefit they expect to
gain from it.
Question 2
How do new classical models differ from orthodox monetarism?
a. New classical models assume rational rather than adaptive
expectations.
b. New classical models do not permit 'money illusion', even in the short
run.
Varsity Cube 2025 +27 81 278 3372
