Exam 19: Current Issues in Macro Theory and Policy

Mainstream economists question the new classical assumption that

Rational expectations theory is based on the assumption that

(Consider This) Monetarists claim that the financial crisis and resulting 2007-2009 recession were caused largely by

Which of the following economic perspectives would be most opposed to a balanced-budget rule?

According to mainstream economists, the Fed's adherence to a traditional monetary rule rather than to discretionary monetary policy is likely to

Monetarists believe the private economy is inherently

The real-business-cycle theory holds that business fluctuations are caused by

According to economist Milton Friedman, a major reason for macroeconomic instability is

Mainstream economists favor

Monetarists and rational expectations theorists both favor policy rules, and both argue against discretionary policy.

If nominal GDP is $848 billion and the velocity of money is 4, then the

Refer to the figure and assume the economy initially is in equilibrium at point a. In the new classical theory, an unanticipated increase in aggregate demand from AD₂ to AD₁ would move the economy

Which of the following ideas of the rational expectations theory has been absorbed into mainstream macroeconomics?

New classical economics suggests that in the long-run, changes in aggregate demand will cause

The equation of exchange suggests that, if the supply and velocity of money remain unchanged, an increase in the physical volume of goods and services produced will cause

According to real-business-cycle theory, recessions are caused by

Does velocity change in response to changes in the money supply according to monetarists?

(Last Word) Discuss the use of prediction markets for adjusting monetary policy.

Mainstream macroeconomists see two main sources of macroeconomic instability: changes in investment spending and, occasionally, adverse aggregate supply shocks.