Under the assumptions of the new Keynesian model, an increase in aggregate demand will
A) increase prices and output in the short-run.
B) lead to a decrease in unemployment and an increase in prices in the short run.
C) lead to an increase in the nominal wage rate in the long run and a decrease in unemployment in the short run.
D) All of the above are correct.
D
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According to real business cycle theory,
A. monetary factors affecting aggregate demand cause macroeconomic instability. B. when real wages fall during recessions, "real" unemployment rates rise. C. recessions result from declines in long-run aggregate supply, rather than decreases in aggregate demand. D. the net long-run costs of business fluctuations are severe.
Which of the following describes the decision-making lag associated with activist policy?
a. The time needed to identify a macroeconomic problem and assess its seriousness b. The time needed to decide what to do once a macroeconomic problem has been identified c. The time needed to introduce a change in monetary or fiscal policy d. The time necessary for changes in monetary or fiscal policy to have an effect on the economy
The term "business fluctuations" refers to:
What will be an ideal response?
Based on the given figure, the economy is initially at point A on the monetary policy reaction function (RF1) and the aggregate demand curve (AD1). The actual rate of inflation is ?' and the Federal Reserve's target inflation rate is ?*1.
If the Federal Reserve lowers its target inflation rate to ?*2, then the Federal Reserve's monetary policy reaction function will ________ and the aggregate demand curve will ________.
A. shift to RF3; shift to AD3 B. shift to RF3; shift to AD2 C. shift to RF2; shift to AD3 D. shift to RF2; shift to AD2