Exam 25: Rational Expectations: Implications for Policy

________ policies do not change aggregate real output or the unemployment rate in the ________ model.

The model that assumes that expectations are formed rationally but does not assume complete wage and price flexibility is known as the

The short-run response to an anticipated expansionary policy in the new classical model includes ________ in the price level and ________ in aggregate output.

In the new classical model,

In the new Keynesian model,an unanticipated increase in the money supply causes

In the new classical model,an anticipated increase in the money stock will cause

The notion that anticipated monetary policy has no effect on the real aggregate output is commonly called the

In the new Keynesian model,explain and depict graphically why an expected increase in the money supply increases real output in the short run.What is the long-run result?

The new classical macroeconomic model assumes that expectations are ________ formed and that wages and prices are ________ with respect to the expected price level.

It is the existence of rigidities such as sticky wages,not adaptive expectations,that explains why ________ policies can affect real output in the ________ model.

The rational expectations hypothesis implies that when macroeconomic policy changes,

In the new Keynesian model,an expansionary monetary policy will

In the new classical model,show graphically and explain how an expected monetary expansion that is less than expected reduces real output in the short run.What is the long-run result?

Whether one views the discretionary policies of the 1960s and 1970s as destabilizing or believes the economy would have been less stable without these policies,most economists agree that

New Keynesians object to which of the following assumptions?

An anticipated increase in the money supply causes the largest long-run increase in real output in

Suppose that the Federal Reserve announces a 50 basis point decrease in the target for the federal funds rate that was completely anticipated.According to the new classical model and with everything else held constant,this action by the Federal Reserve will cause real GDP to ________.

Demonstrate graphically and explain the short-run and long-run effects of an unanticipated monetary expansion in the new classical model.

In the traditional model,the cost of lost output for each one percentage point reduction in the inflation rate is

The policy ineffectiveness proposition