Describe the policy ineffectiveness proposition (PIP). Be sure to state which economic theory the PIP is associated with and the assumptions that are necessary for this argument to hold
The PIP is associated with the new classical theory. The new classical theorists hold that under certain assumptions, neither expansionary fiscal policy not expansionary monetary policy is effective at increasing Real GDP and lowering the unemployment rate in the short run. The assumptions that are required to support PIP are (1 ) the expansionary policy change is correctly anticipated, (2 ) individuals form their expectations rationally, and (3 ) wages and prices are flexible.
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Consider two types of rules that might govern an otherwise unregulated health insurance market: (1) Insurance companies can price-discriminate against the sick and old; (2) insurance companies cannot price discriminate against the sick and old. Explain why, in equilibrium, insurance may be very expensive for the sick and old regardless of which case we find ourselves in.
What will be an ideal response?
The opportunity cost of holding money is:
A. the nominal interest rate. B. the rate of inflation. C. the real interest rate. D. the nominal interest rate less the cost of converting a bond to cash.
Which of the following is a form of monitory policy?
A. Increasing the Money Supply faster than usual during recession. B. Cutting taxes during a recession C. Increase government's spending during recession D. All E. None
Economist _____________ is the author of Globalization and Its Discontents.
Fill in the blank(s) with the appropriate word(s).