Exam 17: New Classical Macro and New Keynesian Macro

Initially a firm pays a wage and gets an output per worker which are given index numbers of 1.00.Five possible 3 percent increases in the wage and the accompanying output per worker are as follows: 1.03 and 1.09,1.06 and 1.17,1.09 and 1.24,1.13 and 1.29,1.16 and 1.31.What is the efficiency wage?

In the United States since the 1920s,there has been only one decade that appears to accord fairly well with the RBC theory of business cycles:

Which of the following statements best describes the rational expectations hypothesis?

What all "New Classical" models have in common is the assumption of

According to efficiency wage theory,a firm that raises wages by one percent will actually lower the labor cost per unit of output if the wage increase

Aggregate price information,such as recalculations of the CPI,is available to the public with ________ lags,causing difficulty for the ________ of the New Classical approach.

A supply shock that reduces labor productivity

In the fooling model,AD/SAS equilibria to the left of LAS are unstable because ________ nominal wages shift ________.

In the "fooling" model,it is assumed that ________ can have inaccurate perceptions of the price level in the economy.

In New Keynesian analysis,firms are assumed to be

An adverse supply shock with a vertical supply of labor curve will

One clear triumph for New Classical macroeconomics is its contribution to the analysis of hyperinflation.In bringing extremely rapid inflation to a halt by radical changes in policy,there is generally ________ loss of output,which ________ the Policy Ineffectiveness Proposition.

The "fooling" model was developed by economist

Suppose that nominal aggregate demand falls by 4 percent,and at the same time every marginal cost also falls by 4 percent.The importance of menu cost theory is that in this situation the price level ________,meaning that a recession ________.

Suppose a worker signs a contract containing a 7 percent nominal wage increase with inflation expected to be 5 percent.Inflation turns out to be 10 percent,but the contract also contains 50 percent COLA protection.The worker's real wage under the contract

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,this reduces its profit by

Much of macroeconomic theory has been developed under the simplifying assumption that relative prices and wages are fixed,or equivalently that the economy is producing one good using one input (labor)with one wage rate.Such an assumption is clearly ________ of New Keynesian macroeconomics,given its emphasis on the importance of ________ in explaining business cycles.

A recent development in the RBC literature is the growing admission of the possible importance of

The reluctance to change the relative relationships between wage rates is called a

One of the major weaknesses of the original Keynesian approach to the business cycle was