Macroeconomics (Book Only)
12th Edition
ISBN: 9781285738314
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 16, Problem 1VQP
To determine
The conditions under which the policy ineffectiveness propositions hold.
Expert Solution & Answer
Explanation of Solution
A policy adopted by the Fed, which is ineffective at changing real GDP is called the policy ineffectiveness proposition (PIP). In other words, when a correctly anticipated policy with rational expectation is held, then a hike in money supply only increases the price level and does not affect the real GDP. The PIP holds under the following conditions:
- Correctly anticipated policy
- Wage price flexibility and
- Individuals hold rational expectations.
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Chapter 16 Solutions
Macroeconomics (Book Only)
Ch. 16.2 - Prob. 1STCh. 16.2 - Prob. 2STCh. 16.2 - Prob. 3STCh. 16.3 - Prob. 1STCh. 16.3 - Prob. 2STCh. 16.3 - Prob. 3STCh. 16.5 - Prob. 1STCh. 16.5 - Prob. 2STCh. 16 - Prob. 1VQPCh. 16 - Prob. 2VQP
Ch. 16 - Prob. 3VQPCh. 16 - Prob. 4VQPCh. 16 - Prob. 5VQPCh. 16 - Prob. 1QPCh. 16 - Prob. 2QPCh. 16 - Prob. 3QPCh. 16 - Prob. 4QPCh. 16 - Prob. 5QPCh. 16 - Prob. 6QPCh. 16 - Prob. 7QPCh. 16 - Prob. 8QPCh. 16 - Prob. 9QPCh. 16 - Prob. 10QPCh. 16 - Prob. 11QPCh. 16 - Prob. 12QPCh. 16 - Prob. 13QPCh. 16 - Prob. 14QPCh. 16 - Prob. 15QPCh. 16 - Prob. 1WNGCh. 16 - Prob. 2WNGCh. 16 - Prob. 3WNGCh. 16 - Prob. 4WNGCh. 16 - Prob. 5WNG
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Similar questions
- What does it mean for a policy outcome to be a Pareto Improvement? What about a Potential Pareto Improvement? Is this a reasonable expectation for policy in most settings? Give an example where a Pareto Improvement (following redistribution) a.) might be achievable b.) seems incredibly unlikelyarrow_forwardWhat is the outcome of the Stolper-Samuelson Theorem??? Account for lessons derived and offer appropriate policy recommendations.arrow_forwardWhat is the reason why we use general equilibrium models in monetary economics?arrow_forward
- Define Degree of necessity?arrow_forwardThere is a telling joke about two economists walking down the street. They spot a $20 bill on the sidewalk. One stoops to pick it up, but the other one says, “Don’t bother; if the bill was real, someone would have picked it up already.” The lesson is clear. A strong belief in efficient markets can disable the investor and make it appear that no research effort can be justified. Do you think there are still enough anomalies in the empirical evidence to justify the search for overpriced/underpricedsecurities? Support your answer with examples and new theories in the context of Efficient Market Hypothesis.arrow_forwardA _______ occurs when decision-makers face incentives that make it difficult to achieve mutually beneficial outcomes.arrow_forward
- A nudge is a policy solution that is (A) cheap to implement; (B) has a predictable effect on agents’ behavior; (C) does not put additional constraints on agents’ freedom of choice; (D) all of the above.arrow_forwardExplain why the Institutionalists’ stress on the role of ‘institutions’ in economics decision making added elements of ‘realism’ to economic analysis. Use the opinion of John Kenneth Galbraith in his ‘dependence effect theory’ to support your argument.arrow_forwardHow is constrained discretion different from discretion inmonetary policy? How are the outcomes of these policies likely to differ?arrow_forward
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