Exam 16: Expectations Theory and the Economy

In what ways does the original Phillips curve differ from the Phillips curve created by economists Samuelson and Solow? What conclusions did economists draw based on the findings of Phillips,Samuelson and Solow?

Exhibit 16-5 -Refer to Exhibit 16-5.If the economy is at point 3,and the natural unemployment rate exists at points 1,4,and 5,it follows that

The economy is in long-run equilibrium when there is a correctly anticipated increase in aggregate demand.In new Keynesian theory,the price level will rise __________ in the short run than it is predicted to rise in new classical theory.

Exhibit 16-9 -Refer to Exhibit 16-9.Assume that the starting point is point 1.Suppose that the government implements expansionary fiscal policy that raises aggregate demand.Which of the following best goes with the diagram shown?

One of the ideas that found a permanent place in macroeconomics after Milton Friedman's presidential address to the American Economic Association in 1967 was that

Suppose that the government implements expansionary fiscal policy that raises aggregate demand,but the policy is unanticipated.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 ____________.

The difference between new classical theory and new Keynesian theory is that

Exhibit 16-1 -Refer to Exhibit 16-1.Suppose the economy is currently at point B on the short-run Phillips curve,SRPC₁.What could get the economy to move to point C on SRPC₂?

When everyone correctly anticipates that the Fed will buy government securities,then they know that prices will increase.Which of the following adjustments is not likely to occur?

A person's real wage will fall if the nominal wage falls,the price level rises,or both.

Explain the difference between how adaptive expectations are formed and how rational expectations are formed.How does this difference affect the speed at which economic variables are expected to change?

Exhibit 16-7 -Refer to Exhibit 16-7.Assume that the starting point is point 1.Suppose that the Fed implements expansionary monetary policy that raises aggregate demand.Which of the following best goes with the diagram shown?

The Samuelson and Solow Phillips curve suggested a(n)__________ relationship between the rate of change in __________ and the unemployment rate.

New Keynesian theory differs from new classical theory in that New Keynesian theory assumes that wages and prices are not completely flexible in the short-run,while fully flexible wages and prices are an assumption of new classical theory.

Exhibit 16-5 -Refer to Exhibit 16-5.If the economy is at point 6,and the natural unemployment rate exists at points 1,4,and 5,it follows that

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

Exhibit 16-5 -Refer to Exhibit 16-5.If the economy continually moves between points 1,2,and 3,it follows that

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

According to new Keynesian theory,if policy is correctly anticipated,increases in aggregate demand will stimulate the economy to higher levels of Real GDP and lower levels of unemployment in

One of the arguments supporting new classical theory is the policy ineffectiveness proposition (PIP).