Question : 25.4   Comparison of the Two New Models with the Traditional : 1373947

 

25.4   Comparison of the Two New Models with the Traditional Model

 

1) An anticipated increase in the money supply has no effect on aggregate output in the ________ model.

A) new Keynesian

B) Keynesian

C) new classical

D) traditional

 

2) An anticipated increase in the money supply increases short-run real output by the largest amount in

A) the traditional model.

B) the new Keynesian model.

C) the new classical model.

D) all three models.

3) An anticipated increase in the money supply causes the largest long-run increase in real output in

A) the traditional model.

B) the new Keynesian model.

C) the new classical model.

D) no model, as monetary policy does not affect real output in the long run.

 

4) An anticipated increase in the money supply causes the largest short-run increase in the price level in

A) the traditional model.

B) the new Keynesian model.

C) the new classical model.

D) all three models.

 

5) In the traditional model, the cost of lost output for each one percentage point reduction in the inflation rate is

A) 4 percent of a year’s real GDP.

B) 0.25 percent of a year’s real GDP.

C) 0.04 percent of a year’s real GDP.

D) 25 percent of a year’s real GDP.

 

6) Rational expectations theory suggests that the success of an anti-inflationary policy depends on the

A) adoption of a gold standard.

B) passage of a tax cut.

C) credibility of the policy in the eyes of the public.

D) imposition of wage and price controls.

 

7) In a new classical view of the world, the best anti-inflation policy, when viewed as being credible, is

A) a gradualist policy.

B) a cold turkey policy.

C) a complete monetary and fiscal reform measure.

D) an activist policy.

8) When expectations of inflation are formed rationally, an anti-inflationary policy will be more successful if it is

A) credible.

B) a surprise.

C) unanticipated.

D) announced.

 

9) It may be necessary to cut the deficit as part of a credible anti-inflationary policy because the public knows that large deficits

A) are inflationary by themselves in the long run.

B) create inefficiencies.

C) put pressure on the Fed to expand the money supply to keep interest rates from rising.

D) put pressure on the Fed to contract the money supply to prevent employment from rising.

 

10) By ________ its deficit, the government’s credibility of anti-inflationary policy ________.

A) not changing; remains the same

B) reducing; increases

C) reducing; decreases

D) not changing; increases

 

11) Explain why anticipated policy has different short-run effects on real output and the price level in the new classical, new Keynesian, and traditional models. What are the long-run effects of anticipated policy in each model?

 

25.5   Impact of the Rational Expectations Revolution

 

1) Today, most economists

A) accept that expectations formation will change when the behavior of forecasted variables changes.

B) believe that the Lucas critique has been discredited.

C) accept the notion that there is no role for activist stabilization policy.

D) believe that having policy credibility is not an important factor to a successful anti-inflation policy.

 

 

 

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