Exam 16: Expectations Theory and the Economy

If expectations are formed rationally,wages and prices are completely flexible in both the short run and the long run,and policy is correctly anticipated,increases in aggregate demand will stimulate the economy to higher levels of Real GDP in

The Phillips curve that Samuelson and Solow fitted to their data was

The expected inflation rate is equal to the actual inflation rate.According to the (Friedman)natural rate theory,the economy is

Suppose that the Fed implements expansionary monetary policy that raises aggregate demand,but individuals incorrectly anticipate the policy measure (bias downward).According to new classical theory,in the short run the price level would ____________ and Real GDP would ______________.In the long run,new classical theory would predict that the price level would ___________compared to its original long-run equilibrium level and that Real GDP would ____________.

An increase in the actual inflation rate is represented by a

The economist who,in his presidential address to the American Economic Association in 1967,attacked the idea of a permanent downward-sloping Phillips curve was

Exhibit 16-2 -Refer to Exhibit 16-2.Suppose the economy starts out at point A and the public correctly anticipates that the AD curve will shift from AD₁ to AD₂.If wages are temporarily fixed,SRAS₁ will __________ and the economy will end up at point __________.

According to new classical theory,if the public correctly anticipates a government policy to increase aggregate demand,then the

According to Milton Friedman,the reason there are two Phillips curves is because

A.W.Phillips collected data on the rate of change in money wages and plotted it against unemployment rates in the United Kingdom.The curve he fit to the data showed that

An unexpected decrease in aggregate demand will cause

The difference between the new classical theory and the new Keynesian theory is the assumption of

In real business cycle theory,business cycle expansions begin as a result of changes in

According to the new classical theory,if the public correctly anticipates a government policy to increase aggregate demand,then

In which of the following economic theories is it possible for an increase in the money supply to lead to a decrease in Real GDP in the short run?

One implication of the policy ineffectiveness proposition (PIP)is that expansionary __________ policy is not effective at raising __________.

Suppose that the government implements expansionary fiscal policy that raises aggregate demand,but individuals incorrectly anticipate the policy measure (bias upward).According to new classical theory,in the short run the price level would ____________ and Real GDP would ______________.In the long run,new classical theory would predict that the price level would ______________ compared to its original long-run equilibrium level and that Real GDP would _____________.

As the price level rises,real wage ____________and people choose to work ___________.

As long as some people anticipate policy,the economic consequences may be the same as if all persons do so.

Stagflation is the simultaneous occurrence of