Question : 25.3   New Keynesian Model 1) The model that assumes that expectations : 1373945

25.3   New Keynesian Model

1) The model that assumes that expectations are formed rationally but does not assume complete wage and price flexibility is known as the

A) new classical model.

B) Keynesian model.

C) monetarist model.

D) new Keynesian model.

2) Wage and price rigidities created by long-term contracts suggest that an anticipated monetary expansion will have

A) no effect on the aggregate price level.

B) no effect on aggregate output.

C) an effect on aggregate output only.

D) an effect on both aggregate output and the price level.

3) New Keynesians object to which of the following assumptions?

A) Rational expectations

B) Wage and price stickiness

C) Complete wage and price flexibility

D) Long-term contracts as a source of wage and price rigidities

4) Rigidities that diminish wage and price flexibility such as long-term contracts suggest that an increase in the expected price level

A) might not translate into complete adjustment of wages and prices.

B) might cause aggregate demand to decrease.

C) might cause aggregate supply to increase.

D) will have no effect on the short-run aggregate supply curve.

5) It is the existence of rigidities such as sticky wages, not adaptive expectations, that explains why ________ policies can affect real output in the ________ model.

A) unanticipated; new classical

B) anticipated; new classical

C) unanticipated; new Keynesian

D) anticipated; new Keynesian

6) In the new Keynesian model

A) wages and prices are assumed to be sticky with respect to expected changes in the price level.

B) only unanticipated policy can affect aggregate output and unemployment.

C) only anticipated policy can affect aggregate output and unemployment.

D) unanticipated policy has no effect on aggregate output and unemployment.

7) Like the new classical model, the new Keynesian model

A) concludes that anticipated policies do not affect aggregate output and unemployment.

B) distinguishes between the effects of anticipated versus unanticipated policy, with anticipated policy having a greater effect.

C) distinguishes between the effects of anticipated versus unanticipated policy, with unanticipated policy having a greater effect.

D) assumes that wages and prices are perfectly flexible with respect to changes in the expected price level.

8) In the new Keynesian model, an unanticipated increase in the money supply causes

A) aggregate demand to increase along a stationary aggregate supply curve.

B) both aggregate demand and supply to increase.

C) aggregate demand to increase as aggregate supply decreases.

D) both aggregate demand and supply to decrease.

9) In the new Keynesian model, an expansionary monetary policy will

A) not cause aggregate output to increase, even if the policy is unanticipated.

B) have a greater effect on aggregate output if the policy is unanticipated.

C) have a greater effect on aggregate output if the policy is anticipated.

D) have no effect on the price level.