Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Chapter 14, Problem 2RQ
To determine
The reason why the great depression is best understood in the IS/MP-
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How would the AD/AS model be different if it assumed rational expectations rather than adaptive expectations? Define and give an example of each.
Would you expect to see long-run data trace out a stable downward-sloping Phillips curve?
Can you show me a graphical representation of an IS-PC-MR model under the New Keynesian Philips Curve during an inflation shock?
Chapter 14 Solutions
Macroeconomics (Fourth Edition)
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Similar questions
- Use the AS/AD model to determine how each of these events will affect the economy. Determine if the economy is initially to the LEFT, ON, or to the RIGHT of the LARS Type exactly one of these 3 options for credit for each of the letters. A- Initial situation: cyclical unemployment is 4% B initial situation: overutilization of resources C-Initial situation: inflationary gap D-Initial situation: the unemployment rate is equal to the natural rate of unemployment E-Initial situation: a positive GDP GAP F-Initial situation: unemployment rate of 6% (US economy) G-Initial situation: cyclical unemployment is zero. H-Initial situation: a recessionarrow_forwardConsider the original AD/AS model in steady state. If the central bank fights against inflation more aggressively, explain how would inflation and short-run output respond differently to aggregate demand shock? (Hint: m-bar)arrow_forwardUse the AD/AS framework to explain the impact of stabilization policy to correct for a negative output gap in the short-run.arrow_forward
- Provide arguments why should policymakers use fiscal and monetary instruments to control aggregate demand and stabilize the economy. If so, when? If not, why not?arrow_forwardShow on a graph of the AS-AD model of the economy how different fiscal and monetary policies impact on the economyarrow_forwardHow can you show an output gap on the vertical phillips curve model?(can use the full inflation targeting model if that helps)arrow_forward
- Under the assumption of anticipated shocks, can policymakers exploit the Phillips curve relationship in the short-run? In the long run?arrow_forwardHow were the Keynesian, Monetarist and New Classical theories of the economy synthesized to develop the New Keynesian Economics?arrow_forwardIf most business cycles are due to inflation shocks, then why is this an argument for passive policy set by rules and not active policy set by discretion?arrow_forward
- Inflationary expectations are an important driver of the Phillips curve relationship. What are three different ways inflationary expectations might be modelled? Depict each graphically.arrow_forwardDuring an election term, the government increases its spending temporarily. Show the effect of this shock on the economy using the IS-MP-PC model. Explain how and why you would change the interest rate in response to this shock. Make sure to draw the IS-MP diagram and Phillips curve.arrow_forwardTrue or false? Phillips curve represents a structural relationship between unemployment and inflation that never changes.arrow_forward
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