Macroeconomics: Theories and Policies 10th Edition

Answers will vary. Answers will vary. Answers will vary. Real Gross Domestic product measures total output in the U.S. adjusted for changes in the price level. The easiest way to calculate a real statistic is to use a constant set of prices across every year. Real Gross Domestic product measures

The natural rate of unemployment is that rate of unemployment that is consistent with the long-run equilibrium level of employment. It changes with the productive capacity of the economy and is not necessarily constant over time. According to the monetarists, monetary policy can influence the actual level of unemployment, but

According to the rational expectations hypothesis, expectations are formed on the basis of all the available relevant information concerning the variable being predicted. Furthermore, individuals understand how the observed variables will affect the variable they are trying to predict. Rational expectations do not mean that people do not make mistakes;

Real Business Cycle models would explain the Great Depression as caused by a large, negative, and persistent productivity shock. One problem with this analysis is that it is very difficult to identify exactly what this shock could be. Another problem is that the Great Depression was characterized by excess supply,

Because, in economics, there are no opportunities for controlled laboratory experiments aimed at settling such controversies. To test theories, events in the real world would have to be examined and many factors vary at the same time. Also, the resulting data are open to different interpretations. Because, in economics, there

The cost of maintaining a fixed exchange rate is giving up the use of monetary policy to control domestic inflation and/or output. The benefits include eliminating exchange rate instability, which should encourage and stabilize international trade as well as encourage capital flows and discourage speculation. The cost of maintaining a

The LM curve shows the interest rate and income that represent equilibrium points for the money market. The IS curve consists of combinations of the interest rate and income that depict equilibrium points in the goods market. The BP curve shows the combinations of the interest rate and income that

2013 Pearson Education, Inc. Publishing as Prentice Hall 2013 Pearson Education, Inc. Publishing as Prentice Hall 2013 Pearson Education, Inc. Publishing as Prentice Hall The money supply is $1.2 billion, or $1,200 million. The money supply is $1.2 billion, or $1,200 million. The money supply is $1.2 billion, or $1,200

The Federal Reserve is not completely independent for a number of reasons, most importantly that it was created by an act of congress and can be disbanded by an act of congress. Also, the chair is up for reappointment every four years. Finally, the chair has to appear regularly before

A political business cycle pertains to the public choice view. It emerges when aggregate demand is overly stimulative in the period before the re-election of politicians with inflation following after the election. As a result, business cycles should be regular and closely follow the election cycle. The partisan theory predicts

The Laffer curve shows the relationship between tax revenue and tax rates with tax revenue plotted on the vertical axis and tax rates on the horizontal axis. It can be seen that the curve will first rise as the tax rate moves up from zero, but at some point (say

By moving to the market, womens work is now counted in GDP while it was excluded before. This does point to an important omission in GDP. However, household production has not been included in GDP because of the difficulty in finding prices for these activities. By moving to the market,

The transition period is the time in which the economy is moving toward the steady state. The steady state is the long-run equilibrium of the economy where output per worker is constant. During the transition period, capital deepening and diminishing marginal returns in addition to increases in technology drive growth.

An endogenous variable is a variable whose value is determined within or by the model whereas the value of an exogenous variable is determined by forces outside the model. The real wage, the level of labor, and output are endogenous in the classical model. Exogenous variables include labor supply, capital,

Government spending and taxes do not have independent effects on aggregate demand because of the adjustment of the interest rate and resulting crowding-out effects on the components of private sector demand. The only things that shift aggregate demand are changes in the money supply or the velocity of money. Government

In Keynes opinion, volatile expectations drive volatile planned investment demand. Because of the multiplier associated with changes in planned investment, these changes lead to large changes in output and business cycles. In Keynes opinion, volatile expectations drive volatile planned investment demand. Because of the multiplier associated with changes in planned

A liquidity trap is the assumption that one is on the horizontal portion of the demand for money curve where the demand for money is assumed to be perfectly interest elastic. A liquidity trap is the assumption that one is on the horizontal portion of the demand for money curve

According to the Keynesians, at the low levels of income and interest rates that prevail during a depression, the economy would be on the nearly horizontal range of the LM curve and the IS curve would be very steep. Therefore, monetary policy would be ineffective in influencing output. According to

The classical aggregate demand schedule depends only on the level of the money stock. The aggregate demand curve in the Keynesian system depends on the quantity of money, and on such variables as the level of government spending, the level of tax collection, and the level of autonomous investment expenditures.

The spending hypothesis is the Keynesian version of what caused the Great Depression. The Keynesians believe that the primary causes of the Depression were autonomous declines in consumption, investment, and exports. These declines in the components of aggregate demand were the result of the stock market crash of 1929, overbuilding