00:01
In 2019, the expected rate of inflation was 7%.
00:06
So 2019, ee, this is expected inflation, was 7%, but the actual rate of inflation was 5%.
00:19
Now, we want to know the expected rate of inflation for 2020, based on the information we've been given.
00:27
So this is referring to adaptive expectations.
00:34
So we have our predicted inflation rate, and that predicted rate is influenced by what actually happened in the previous year.
00:43
The amount by which it is influenced is given by lambda, an adjustment factor.
00:48
Here, lambda is 0 .5.
00:50
Now, lambda can be anywhere from 0 to 1.
00:55
And we have a formula that helps us here.
00:59
So the inflation rate, the predicted inflation rate, is equal to the prediction for the previous year, plus lambda multiplied by the difference between predicted and actual...