Exam 19: Current Issues in Macro Theory and Policy

Refer to the graph. Assume that the economy is in initial equilibrium where AD $A D _ { 1 }$ intersects A $A S _ {1 }$ . If There is a decrease in aggregate demand to AD $A D _ { 2 }$ , then, according to mainstream economists, if Prices are ?exible and wages are not, this will result in an equilibrium at point

In the rational expectations view,

Which economic perspective typically views the market system as less than fully competitive, and therefore subject to macroeconomic instability?

Monetarists and rational expectations theorists believe that cost-push inflation is impossible in the long run in the absence of excessive money supply growth.

Monetarists say

Dividing nominal gross domestic product (GDP) by the money supply (M) is a way to obtain the

In the mainstream view, the economic instability brought about by "oil shocks" works through changes in

The "efficiency wage" is one possible explanation for rigidities in the economy that lead to economic instability.

The view that inappropriate monetary policy was the main reason for the depth of the Great Depression in the United States is most closely associated with

New classical economists say that a fully anticipated increase in aggregate demand

An efficiency wage is

Efficiency wage theory says that an above-market wage can reduce labor costs per unit of output by eliciting greater work effort, lowering supervision costs, and reducing job turnover.

Hourly Wage Rate Output per Hour of Work \ 10 6 9 6 8 4 7 2 6 1 Refer to the table. The e?ciency wage is

If the velocity of money remains unchanged and the economy is at full employment, then the equation of exchange predicts that a rise in the money supply will

In the equation of exchange, the nominal GDP is designated by

The crowding-out effect refers to the possibility that

Most economists today would agree with the view that "money doesn't matter" in macroeconomic theory.