Exam 12: U.S. Inflation, Unemployment, and Business Cycle

The Keynesian explanation of the business cycle rests on several concepts, including

According to the new classical theory, policy changes have no effect on real GDP and according to the new Keynesian theory, policy changes have an effect on real GDP.

Which of the following can start an inflation?

The factor leading to business cycles in the cycle theory is unexpected fluctuations in aggregate demand while in the cycle theory both unexpected and expected fluctuations in aggregate demand are factors that lead to business cycles.

-In the above figure, which path represents a cost- push inflation?

In a speech to Asia Pacific Economic Cooperation summit in Peru in November 2008, President Hu of China commented on his country's $586 billion fiscal stimulus plan by saying, "Instead of relying mainly on investment and export we will adopt a coordinated approach that combines consumption, investment and export to boost the economy. And instead of relying heavily on higher consumption of material resources we will achieve development by making scientific and technological progress." If his country's plan works and the expected inflation rate does not change, there will be a

Which theory maintains that the money wage rate always adjusts freely?

Inflation describes the event of increasing output and rising prices.

The real business cycle theory views fluctuations in the quantity of money as the main source of business cycles.

Which monetary policy can be used to reduce demand- pull inflation?

Rational expectations are

As the money wage rate rises,

-In the above figure, the economy initially is at point A and then increases in the quantity of money move the economy to point B the next year and C the year after. The economy has had a

Which of the following theories is criticized for assuming the money wage rate is not sticky?

A demand- pull inflation initially is characterized by

Suppose that the Federal Reserve is expected to expand the quantity of money by 5 percent but ends up expanding it by only 2 percent. If the new Keynesian theory is correct, which of the following describes the effect on the economy?

Using the Phillips curves, what are the short- run and long- run effects of a decrease in the inflation rate?

-An economy's natural unemployment rate is 4 percent. The table above gives some points on the economy's short- run Phillips curve. If the expected inflation rate becomes 8 percent per year, then the .

A criticism of the real business cycle (RBC) theory is that

Demand- pull inflation starts with