Exam 17: Stabilization in an Integrated World Economy

-In the above figure, starting at , if there is a supply shock that is permanent, the

New Keynesian inflation dynamics can account for sluggish responses of

Assume that the government decides to use fiscal or monetary policy to stimulate the economy and that this action comes as a surprise to most individuals and businesses. In the short run, the result will be

A hypothesis that assumes that people combine the effects of past policy changes on economic events and their own judgment about future effects of current and future policy changes is known as

Which of the following is the rate of unemployment that occurs after all adjustments in the labor market have occurred?

When "stagflation" occurs,

-In the above figure, suppose the economy is initially at a short-run equilibrium at point D and there is an unanticipated increase in the money supply. Which point represents the new short-run equilibrium?

-In the above figure, suppose the economy is currently in equilibrium at point C. Applying rational expectations theory, what happens if the Fed announces that it is decreasing the money supply and follows through on its statement?

The Federal Reserve is anticipating a contractionary period in the economy. The Fed decides to engage in open market operations to stimulate the economy. This action is

In new Keynesian theory, the pattern of inflation exhibited by an economy with growing aggregate demand known as inflation dynamics is

The stagflation experienced in the U.S. during the late 1960s and the 1970s showed us that

Real business cycle theory emphasizes the effect of ________ on economic performance.

-Refer to the above figure. Unexpected contractionary monetary policy has caused the aggregate demand curve to shift to . In the short run,

What did Milton Friedman and E.S. Phelps argue with respect to the Phillips Curve?

The real business cycle theory

The rational expectations hypothesis suggests that if wages and prices are flexible,

According to some New Keynesian theories, one possible rationale for active policy making is

What best defines active policy making?

The idea of policy making being undertaken as a response to a change in the economy is referred to as

According to the real business cycle theory, an increase in an input price, such as oil, will