How do rational expectations models differ from traditional classical economics? How does the new Keynesian model differ from the traditional Keynesian view?
What will be an ideal response?
A rational expectations model sees no real effect of monetary policy while the classical economics had changes in the money supply affecting aggregate demand. The classical view was that stabilization policy was unnecessary and the newer view is that it is too difficult to conduct. The traditional Keynesian view focused entirely on aggregate demand and emphasized fiscal policy while the new Keynesian view supports the role of monetary policy as well.
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The per-worker production function shows the relationship between ________ per hour worked and ________ per hour worked, holding ________ constant
A) capital; labor; real GDP B) capital; real GDP; technology C) labor; capital; real GDP D) labor; real GDP; technology
Everything that consumers purchase during a period is included as part of consumption when calculating GDP
a. True b. False
Suppose the nominal interest rate is 0.04, the expected inflation rate is 0.025, and the expected real after-tax interest rate is 0.005. What is the tax rate on interest income?
A. 0.30 B. 0.15 C. 0.25 D. 0.20
If the price-elasticity coefficient for a good is .75, the demand for that good is described as:
A. Normal B. Elastic C. Inferior D. Inelastic