Exam 16: Stabilization in an Integrated World Economy

-In the above figure, suppose the economy is currently in equilibrium at point C. Applying rational expectations theory, what happens if the Fed announces that it is decreasing the money supply and follows through on its statement?

-Refer to the above figure. The rational expectations hypothesis implies that an anticipated decrease in aggregate demand from AD₂ to AD₁ will

-Refer to the above figure. Suppose the economy is at C. If the government tried to reduce the unemployment rate to 3 percent, the new long-run outcome will be at point

Economists who believe in activist policy making argue that

Active policy making refers to

Real business cycles could be a result of

What is the modern view of the Phillips curve?

An unexpected increase in aggregate demand causes

Monetary and fiscal policy making that is carried out in response to a pre-set rule and does not respond to changes in economic activity is known as

-Refer to the above figure. Unexpected expansionary monetary policy has caused the aggregate demand curve to shift to AD₂. In the short run

When policy makers base their actions on a rule there is

-Refer to the above figure. Suppose the economy is at point B and the central bank adopts expansionary monetary policy. In the short run, this will result in

Using a graph, show and explain the difference between an anticipated and an unanticipated increase in aggregate demand.

Rational expectations theory suggests that short-run stabilization policy

-In the above figure, suppose the economy is in equilibrium at point A. The Fed engages in an expansionary monetary policy that is fully anticipated by the public. Other things being equal, what point represents the new equilibrium according to the rational expectations theory?

Which of the following statements concerning price rigidity is TRUE?

Real business cycle theory emphasizes the effect of ________ on economic performance.

Which of the following would be an example of passive policy making?

The proposition that policy actions have no real effects in the short run if the policy actions are anticipated is known as

According to some New Keynesian theories, one possible rationale for active policy making is