Exam 17: New Classical Macro Confronts New Keynesian Macro

In the fooling model, real wages

The natural real GDP will ________ following a fall in energy prices because

The more a nation depends on imported raw materials, the ________ closely linked is its marginal cost to its nominal aggregate demand, thus the ________ for the typical firm is a policy of indexing price to nominal aggregate demand.

Efficiency wage theory provides a reason for uncontracted nominal wages to ________ when nominal aggregate demand falls, thus ________ a recession.

Figure 17-2 represents a monopolist faced with a decrease in the demand for her product. She initially charges P0 and produces Q0. Figure 17-2 -Without changes in MC to maximize profits, the firm will produce at point ________ on the new demand curve and lower price to ________.

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

Faced with a decrease in the demand for its product, a monopolist will lower prices and maintain output at its previous level if

The new Keynesian economists argue that prices are relatively rigid because of

In the fooling model, suppose that from an initial AD/SAS/LAS equilibrium a sudden expansion of aggregate demand occurs. With fooling, we would find employment and the actual real wage in the labor market diagram by moving

A crucial feature of early Keynesian business cycle theory is that real wages vary ________, which in fact ________ clearly emerge from U.S. data on wages over time.

Which of the following is NOT a basic assumption of the "Lucas" model?

Which of the following countries has a flat SAS curve?

Employing the New Keynesian concepts of "macroeconomic externality" and "coordination failure": if nominal aggregate demand and marginal cost fall by the same proportion, society ________ afford to compensate firms for the profit they lose when they ________.

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 ________.

Classical macroeconomic theory was discredited and gave way to the first Keynesian approach as a result of

Gordon suggests that full indexation of production costs to nominal AD would solve the macroeconomic externality. However, individual firms would be unlikely to extend full indexation to their workers because

Robert Lucas Jr. adapted the fooling model to his own way of thinking by replacing that model's assumption of

The "information barrier" that is the root cause of business cycles in the Lucas model is that

The New Classical assumption of how quickly markets clear is actually most appropriate in the analysis of

According to Gordon, a major problem with Keynes "rigid nominal wage" theory of the business cycle is