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Chapter 25: Q.1 (page 677)

Robert Lucas won the Nobel Prize in economics. Go to http:/nobelprize.org/nobel_prizes/economics/ and locate the press release on Robert Lucas. What was his Nobel Prize awarded for? When was it awarded?

Short Answer

Expert verified

R.L. received the Nobel Prize for Literature in 1995. The Nobel Prize was given to R.L. because he formulated and applied the rational expectations theory.

Step by step solution

01

Step 1. Concept of  Rational expectation

Rational expectation refers to the concept in economics which states that the current expectations in an People's perceptions about future economic situations influence and shape the economy.. It states that the expectation of the people changes with the change in the available information and the past data.

02

Step 2. Explanation

In 1995 , R.L. The Nobel Prize in Physics was awarded to him. The Nobel Prize was given to R.L. for developing and applying the rational expectations hypothesis. On the basis of historical facts, he modernized macroeconomics by claiming that people's expectations are unpredictable. Through advances in rational expectation theory and more relevant monetary policy, he improved macroeconomic understanding.

As a result of his efforts in 1995 , the RL received a Noble Prize.

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Most popular questions from this chapter

Suppose the central bank is following a constant-money-growth-rate rule and the economy is hit with a severe economic downturn. Use an aggregate supply and demand graph to show the possible effects on the economy. How does this situation reflect on the credibility of the central bank if it maintains the money growth rule? How does it reflect on the central bank's credibility if it abandons the money growth rule to respond to the downturn?

Central banks that engage in inflation targeting usually announce the inflation target and time period for which that target will be relevant. In addition, central bank officials are held accountable for their actions (e.g., they could be fired if the target is not reached), and their success or lack thereof is also public information. Explain why transparency is such a fundamental ingredient of inflation targeting.

If the public expects the Fed to pursue a policy that is likely to raise short-term interest rates permanently to 5%, but the Fed does not go through with this policy change, what will happen to long-term interest rates? Explain your answer.

Many economists are worried that a high level of budget deficits may lead to inflationary monetary policies in the future. Could these budget deficits have an effect on the current rate of inflation?

Various survey-based measures of inflation expectations are available reflecting consumer, market, and economists" outlooks. For instance, the Survey of Professional Forecasters (SPF) is available from the Philadelphia Federal Reserve at https//www.philadelphiafed.org/research-and-data/ real-time-center/survey-of-professional-forecasters/, while the well-known University of Michigan consumer inflation expectations survey is available at https://fred st1ouisfed org/series/MICH. Compare the most recent readings of inflation expectations of the SPF and Michigan survey to actual CPI inflation. In general, which one seems to be more accurate?
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