Chapter 16, Expectations Theory and the Economy Video Solutions, Macroeconomics

00:45

Problem 1

What does it mean to say that the Phillips curve presents policy makers with a menu of choices?

Erwin Antoni

Numerade Educator

00:45

Problem 2

According to Friedman, how do we know when the economy is in long-run equilibrium?

Daniel Cisneros

Numerade Educator

03:21

Problem 3

What is a major difference between adaptive and rational expectations? Give an example of each.

Sanchit Jain

Numerade Educator

02:15

"The policy ineffectiveness proposition (connected with new classical theory) does not eliminate policy makers' ability to reduce unemployment through aggregate demand-increasing policies, because they can always increase aggregate demand by more than the public expects." What might be the weak point in this argument?

Andrew Davis

Numerade Educator

02:03

Problem 5

Why is the new classical theory associated with the word "classical?" Why has it been said that classical theory failed where new classical theory succeeds-because the former could not explain the business cycle (the ups and downs of the economy), but the latter can?

Xiaomin Bian

Numerade Educator

00:45

Problem 6

Suppose a permanent downward-sloping Phillips curve existed and offered a menu of choices of different combinations of inflation and unemployment rates to policy makers. How do you think society would go about deciding which point on the Phillips curve it wanted to occupy?

Erwin Antoni

Numerade Educator

06:28

Problem 7

Assume a current short-run trade-off between inflation and unemployment, as well as a change in technology that permits the wider dispersion of economic policy news. How would the change affect the trade-off? Explain your answer.

Md.Daniyal Arshad

Numerade Educator

00:50

Problem 8

New Keynesian theory holds that wages are not completely flexible because of such things as long-term labor contracts. New classical economists often respond that experience teaches labor leaders to develop and bargain for contracts that allow for wage adjustments. Do you think that the new classical economists have a good point? Why or why not?

Kaylee Mcclellan

Numerade Educator

00:28

Problem 9

What evidence can you point to which suggests that individuals form their expectations adaptively? What evidence can you point to which suggests that individuals form their expectations rationally?

Erwin Antoni

Numerade Educator

13:32

Problem 10

Suppose the government undertakes an expansionary fiscal policy measure that raises aggregate demand but individuals incorrectly anticipate the measure, bias upward. What will the short-and long-run changes be in the price level and Real GDP?

Paul A.

California State Polytechnic University, Pomona

08:21

Problem 11

Explain both the short- and long-run movements of Friedman natural rate theory, assuming that expectations are formed adaptively.

Rashmi Sinha

Numerade Educator

02:44

Problem 12

Explain both the short- and long-run movements of the new classical theory, assuming that expectations are formed rationally and policy is unanticipated.

Tommy Nguyen

Numerade Educator

02:58

Problem 13

"Even if some people do not form their expectations rationally, the new classical theory is not necessarily of no value." Discuss this statement.

Tommy Nguyen

Numerade Educator

01:55

Problem 14

In real business cycle theory, why can't the change in the money supply prompted by a series of events catalyzed by an adverse supply shock be considered the cause of the business cycle?

Kaylee Mcclellan

Numerade Educator

04:43

Problem 15

The expected inflation rate is 5 percent, and the actual inflation rate is 7 percent. According to Friedman, is the economy in long-run equilibrium? Explain your answer.

Alex Loukas

Numerade Educator

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