Exam 17: New Classical Macro Confronts New Keynesian Macro

Suppose a worker signs a contract containing an 8 percent nominal wage increase with inflation expected to be 3 percent. Inflation turns out to be 6 percent, but the contract also contains 60 percent COLA protection. The worker's real wage under the contract

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

In the RBC model, the importance of "intertemporal substitution" of labor supply is ________, which results in a rather ________ labor supply curve.

The RBC model tells us that

The more that firms in an economy believe that the demand for their goods is mainly influenced by the aggregate level of demand and not "local conditions," the ________ is the SAS curve and thus the ________ are cycles in real GDP.

A principle difference between the new Classical and the new Keynesian models has to do with the choices made by business firms. We find that

According to the Real Business Cycle model real wages should

According to Gordon which of the following statements about Friedman's fooling model is accurate?

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 -In the figure above, the profit-maximizing quantity, in the absence of "menu costs," ________, with profit equal to ________.

According to the new Keynesian economists, SAS adjusts slowly to a change in AD because of

If the labor supply curve is upward-sloping, an adverse supply shock causes ________ in employment and ________ in the real wage.

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 New Keynesian firm produces the output at which

Which of the following is not a reason why natural GDP might fall as a result of a supply shock?

Economist Edward Prescott is associated with the

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?

Under the assumptions of the new Keynesian model, an increase in aggregate demand will

In the RBC model, an adverse supply shock causes the decrease in natural real GDP to be minimized when the labor supply curve is

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

Figure 17-3 -In the figure above, suppose we are working under assumptions of the Lucas model. With an expansionary monetary policy, the "policy ineffectiveness proposition" is shown as a movement between points