Exam 19: Current Issues in Macro Theory and Policy

Refer to the graph above. Assume that the economy is in initial equilibrium where AD₁ intersects AS₁. If there is an anticipated increase in aggregate demand to AD₂, then according to the rational expectations economists, the path for adjustment runs from point:

From a monetarist perspective, an expansionary fiscal policy's effect on aggregate demand would be offset by:

Assume monetary equilibrium exists; that is, the desired and actual supply of money are equal. Also assume that nominal GDP equals $960 billion and the money supply is $160 billion. From a strict monetarist view, an increase in the money supply by $12 billion will increase nominal GDP by:

Refer to the graph above. Assume that the economy is initially in equilibrium at the intersection of AD₁ and AS₁. Suppose that there is economic growth which shifts AS₁ to AS₂. Because of the shift from AS₁ to AS₂, a monetarist following a monetary rule would call for an increase in aggregate demand such that the price level and quantity of real domestic output would be:

Rational expectations theory assumes that both product and resource markets are competitive and that wages and prices are flexible.

The policy position that the supply of money should be increased at a constant rate each year is most closely associated with the views of:

In the rational expectations theory, a temporary change in real output could result from:

Mainstream macroeconomics would suggest that fiscal policy:

The view that changes in the money supply is the primary cause of change in real output and the price level is most closely associated with:

The rational expectations view that expectations regarding policy and its effects are important to consider:

Coordination failures occur when people lack some way to jointly coordinate their actions to reach a(n):

The mainstream view is that macro instability is caused by the volatility of the money supply which constantly shifts the aggregate demand curve around.

Real-business-cycle theory suggests that changes in:

In the view of real-business-cycle theory, an increase in the long-run aggregate supply would lead to a(n):

Refer to the graph above. Assume that the economy is in initial equilibrium where AD₁ intersects AS_LR1. If the economy experiences a change in technology that increases productivity and resources, then real-business-cycle theory would suggest that this macroeconomic instability would eventually produce a new equilibrium at point:

In the rational expectations view:

Within the aggregate demand-aggregate supply framework, a strict interpretation of rational expectations theory suggests that a change in aggregate:

Monetarists argue that the relationship between:

The view that anticipated changes in the money supply will have no effect on the economy's output would most likely be a proposition of:

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