How do the new Keynesian and real business cycle models differ on the ability of inflationary expectations to affect output?
What will be an ideal response?
Both models recognize the influence of expectations on aggregate demand and, thus, on inflation. Both models imply that expected high inflation is a self-fulfilling prophecy, which is likely to have a negative effect on output. In the new Keynesian model, an upward shift of the short-run aggregate supply curve causes output to fall below potential output. In the real business cycle framework, high inflation distorts incentives and disrupts capital markets, causing a decrease in (potential) output.
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A cafeteria is willing to produce 100 cups of coffee when the price is $1 and 150 cups of coffee when the price is $1.30, other things being equal. The price elasticity of supply of coffee is
A) 1.53. B) 0.67. C) 0.10. D) 0.50.
Transportation Department requires that airlines give refunds for tickets ___________ within 24 hours of a purchase, or offer a 24-hour hold, for tickets bought more than a week before departure.
Fill in the blank(s) with the appropriate word(s).
The number of people in the world who are absolutely poor is closest to
a. a quarter-billion. b. a half-billion. c. one and a half billion. d. two billion. e. four billion.
The price at which a good or service is traded on international markets is called the ________ price.
A. international B. world C. market D. universal