In order to explain fairly simply how expectations are formed, we advancethe hypothesis that they are essentially the same as the predictions of therelevant economic theory. In particular, the hypothesis asserts that theeconomy generally does not waste information, and that expectations dependspecifically on the structure of the entire system. Methods of analysis, whichare appropriate under special conditions, are described in the context of anisolated marlcet with a fixed production lag. The interpretative value of thehypothesis is illustrated by introducing commodity speculation into thesystem.
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