Exam 17: New Classical Macro and New Keynesian Macro

By the theory of intertemporal substitution of labor,a higher current real interest rate ________ the amount of labor ________ at each real wage rate in the current period.

"Input-output" macroeconomics stresses that a change in nominal aggregate demand ________ produces an equal-proportional change in every firm's marginal cost,so that firms should consider indexing their price to nominal aggregate demand a very ________ pricing strategy.

Gordon believes that the new Keynesian approach as opposed to other business cycle theories is preferred because

The basic RBC model produces ________ movements in the real wage,which in fact are ________ in the statistical evidence.

In Figure 17-4,below,initial demand,marginal cost,and marginal revenue curves (none of them shown)caused the firm to produce the profit-maximizing quantity Y₀ at a price of P₀.Now the demand and marginal cost curves have moved to those shown,with the marginal revenue curve running through point L. Figure 17-4 -If the firm in Figure 17-4 above maintains its set price of P₀,rather than dropping price to P₁,the welfare loss to society due to this decision is

The central idea distinguishing the "efficiency wage model" is that the wage paid by Firm A relative to the wages at other firms helps determine

Figure 17-3 -In Figure 17-3 above,suppose we are working under the assumption of the Lucas model.It is the year of the presidential election,and fiscal policy becomes more expansionary.If every firm is convinced that its price increase is being duplicated across the economy,we would picture this as a movement between points

The flaw of the Real Business Cycle model is that it

If a macroeconomic model consists of upward-sloping short-run aggregate supply and downward-sloping aggregate demand,can it possibly generate a constant real GDP with no business cycles over time?

A transaction between A and B benefits both parties by 50,but imposes a cost on C of 20.C has the right to prevent the transaction.A "coordination failure" in this situation

Gordon argues that individual workers and firms prefer long-term contracts,but that such contracts

American automobile manufacturers and dealers appear to adjust the price (sticker prices plus financing charges)by periodically changing interest rates and by using rebates and surcharges as opposed to directly changing sticker prices.Assuming that they maximize their profits,this pricing approach may reflect

The actual real wage must be below the equilibrium real wage in order to encourage firms to produce at any output level above the natural rate.Once workers realize this situation,their expected price level will gradually rise and they will demand a higher nominal wage.This description of a business cycle adjustment is part of which of the following theories?

In the fooling model,real wages

A positive "price surprise" will result in a

Were the government to decree that henceforth all wages and other input prices are to be indexed to nominal aggregate demand,this ________ "coordination failure" of the macroeconomy and ________ business cycles.

The "real business cycle" (RBC)model adapts the Lucas model by replacing its assumption of

When there is extremely high and volatile inflation in an economy,the decision-making of firms leads to a very ________ SAS curve and thus relatively ________ cycles in real GDP.

If forecasting errors are rational,then

Crucial assertions in the menu-cost literature are that those costs ________ be large for them to have an effect on firms' pricing,while potential total welfare losses ________ menu costs that have been avoided.