Exam 17: New Classical Macro Confronts New Keynesian Macro

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.

Which of the following best describes the policy ineffectiveness proposition?

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.

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 -If the firm is able to reduce MC from MC0 to MC1 the firm will produce at point ________ on the new demand curve and lower price to ________.

According to the original Keynesian model, there would be counter-cyclical movements of the real wage rate in response to changes in aggregate demand because

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

If all firms are paying efficiency wages and nominal aggregate demand falls, then between maintaining nominal wages and reducing them firms generally find it more profitable to ________ them, thus ________ the unemployment rate.

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 the figure above maintains its set price of P0, rather than dropping price to P1, it must be facing a "menu cost" of adjusting its price that exceeds

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

Figure 17-1 -In the Friedman "Fooling Model" if P(e) is less than P then the labor supply curve in the figure above

Higher consumer prices caused by external forces would boost the wage costs of firms without any commensurate increase in the nominal demand for their products if

Suppose that firms are paying their "efficiency wage" rate and AD shifts leftward. Firms that lower wages and maintain production would

Which explanation for persistent unemployment used by the original Keynesian model is no longer needed in the new Keynesian model?

According to the classical model, real wages should

The "fooling" model was developed by economist

Business cycles will occur if either of the two theories below characterizes the behavior of the economy

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

In the RBC model, actual real GDP is

The flaw of the original Keynesian model of the business cycle is that it

In the fooling model, should an expansion of aggregate demand cause fooling, the actual real wage ________ while the expected real wage ________.