What are the implications for macroeconomic policy of adaptive expectations?

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pohnpei397 eNotes educator| Certified Educator

There are two major implications.

First, there is the implication that these expectations will affect the public's demand for macroeconomic policies.  We see this at work in the United States today.  People believe that the US should continue to grow steadily because it experienced strong and steady growth for about 50 years following World War II.  Therefore, they expect the government to produce macroeconomic policy that will bring back those levels of growth.

Second, there is the implication about what policies policymakers will take.  If policymakers expect things to happen as they did in the past, they will propose and adopt policies that worked in the past.  This may lead to them "fighting the last war" and perhaps falling behind as they fail to understand new realities.