Exam 17: Stabilization in an Integrated World Economy

If the price of bubble gum changed in the market from 1 cent to 1.5 cents and Joe's Market didn't change the price it charges for the bubble gum, this behavior is likely due to

If a policy maker is convinced that time lags frequently negate the impact of short-run stabilization efforts, it is likely she would favor ________ policy making.

Those who accept both the rational expectations hypothesis and the assumption of flexibility of wages and price would likely argue that

Proponents of passive policy making believe that

Describe new Keynesian economics and the arguments used to support the ideas.

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

An economist who would most likely use active policy making would support which of the following conclusions?

Suppose that the economy is in long-run equilibrium and the government decided to engage in unexpected expansionary policy by increasing the money supply. If we assume rational expectations, which of the following statements is correct about the effect of expansionary policy in the long run?

According to the hypothesis of New Keynesian inflation dynamics, an increase in aggregate demand brings about

Some economists suggest that because of the costs of negotiating contracts, printing price lists, etc., it is costly for firms to change prices in response to demand changes. This hypothesis is known as the

The rational expectations hypothesis is based on the assumption that

Suppose the government abolished the minimum wage law and the law that requires union wage rates to be paid on all government contract jobs. We would expect to see

According to the real business cycle theory, which of the following is a true statement about the effects of an oil shock in the 1970s?

According to economists who support passive policy making,

-In the above figure, if we start at and , and the money supply increases unexpectedly, what would be the short-run equilibrium even with rational expectations?

Suppose the economy is in equilibrium when there is a change in environmental policy that bans all pesticides and herbicides on farmland. We would expect to observe

Menu costs are

According to the rational expectations hypothesis, the attempt by the government to reduce unemployment below its natural rate through expansionary policies will

The natural rate of unemployment has increased in the United States and Europe over the last twenty years. What are things that could account for this?

The Phillips curve trade-off relationship implies that