Exam 25: Rational Expectations: Implications for Policy

Lucas argues that when policies change,expectations will change thereby

An anticipated increase in the money supply causes the largest short-run increase in the price level in

The new classical model has the word classical associated with it because,when an increase in the money supply is anticipated,aggregate output

Wage and price rigidities created by long-term contracts suggest that an anticipated monetary expansion will have

The interest rate thought to have the most important impact on aggregate demand is the

Kristin the economist argues that an anticipated monetary expansion will cause aggregate output to increase but believes that aggregate output would increase by an even greater amount if the monetary expansion came as a surprise to everyone.Kristin is probably a

In the new Keynesian model

An anticipated increase in the money supply increases short-run real output by the largest amount in

A rise in short-term interest rates that is believed to be only temporary

The Lucas critique is an attack on the usefulness of

Rigidities that diminish wage and price flexibility such as long-term contracts suggest that an increase in the expected price level

In the new classical macroeconomic model developed by Lucas and Sargent,an anticipated monetary expansion will

When expectations of inflation are formed rationally,an anti-inflationary policy will be more successful if it is

According to the new classical model,

By ________ its deficit,the government's credibility of anti-inflationary policy ________.

An anticipated increase in the money supply has no effect on aggregate output in the ________ model.

In the new classical model,an anticipated policy of a continually increasing money supply causes

In the view of the new classical economists,an increase in the money supply will affect aggregate output and employment only if the increase in money supply is

Like the new classical model,the new Keynesian model

An important feature of the new classical model is that an expansionary policy,such as an increase in the rate of money growth,can lead to a decline in aggregate output if the