Exam 16: Expectations Theory and the Economy

The economy is in long-run equilibrium when there is a correctly anticipated increase in aggregate demand.According to new classical theory,the price level will __________ and Real GDP will __________.

Samuelson and Solow,in their 1960 study of the Phillips curve as it applies to the U.S.experience,argued that there was a tradeoff between inflation and unemployment.Later experience showed their analysis to be

In the real business cycle theory,business cycle contractions begin as a result of changes in

In what ways does the original Phillips curve differ from the Phillips curve created by economists Samuelson and Solow? What conclusions did economists draw based on the findings of Phillips,Samuelson and Solow?

Exhibit 16-3 -Refer to Exhibit 16-3.The economy is at point C.If a decrease in aggregate demand is correctly anticipated in the short run,new classical theory would predict

According to the new classical theory,if the public correctly anticipates a government policy to increase aggregate demand,then

Exhibit 16-5 -Refer to Exhibit 16-5.If the economy continually moves between points 1,2,and 3,it follows that

According to the real business cycle theory,business cycle contractions are generally caused by

According to new Keynesian theory,if policy is correctly anticipated,increases in aggregate demand will stimulate the economy to higher levels of Real GDP and lower levels of unemployment in

In the 1970s and early 1980s,the U.S.economy experienced

A person's real wage will fall if the

Exhibit 16-10 -Refer to Exhibit 16-10. Assume that the starting point is point 1. Suppose that the government implements expansionary fiscal policy that raises aggregate demand. Which of the following best goes with the diagram shown?

A fall in the expected price level leads to an expectation that real wages will ____________,which will cause people to work __________,shifting the SRAS curve _______________.

The economy is in long-run equilibrium when there is an incorrectly anticipated increase in aggregate demand brought about by expansionary monetary policy.Specifically,aggregate demand increases by more than people anticipate (bias downward).According to new classical theory,the price level will __________ and Real GDP will __________ in the short run.In the long run,the price level will be __________ than it was before aggregate demand increased.

Exhibit 16-2 -Refer to Exhibit 16-2.The Policy Ineffectiveness Proposition could be illustrated by a movement between points A and

The economy was in long-run equilibrium when aggregate demand increased.At this point in time,the expected inflation has started to adjust to the new higher actual inflation rate.According to the (Friedman)natural rate theory,this means the unemployment rate in the economy must currently be

The economy is in long-run equilibrium when there is an incorrectly anticipated increase in aggregate demand brought about by expansionary monetary policy.Specifically,aggregate demand increases by less than people anticipate (bias upward).According to new classical theory,the price level will __________ and Real GDP will __________ in the short run.In the long run,the price level will be __________ than it was before aggregate demand increased.

The original Phillips curve suggests a(n)__________ relationship between the rate of change in __________ and the __________.

Exhibit 16-3 -Refer to Exhibit 16-3.The economy is at point A.As the result of an unexpected increase in aggregate demand,in the short run,the Friedman natural rate theory would predict

Exhibit 16-1 -Refer to Exhibit 16-1.Milton Friedman would most likely have called the vertical line on which points A and C are located the