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- Would it make sense to argue that rational expectations economics is an extreme version of neoclassical economics? Explain.Why would an economist choose either the neoclassical perspective or the Keynesian perspective, but not both?Do neoclassical economists tend to focus more on cyclical unemployment or on inflation? Explain briefly.
- When the economy is experiencing a recession, why would a neoclassical economist be unlikely to argue for aggressive policy to stimulate aggregate demand and return the economy to full employment? Explain your answer.Economists from all theoretical persuasions criticized the American Recovery and Reinvestment Act. The Stimulus Package was arguably a Keynesian measure so why would a Keynesian economist be critical of it? Why would neoclassical economists be critical?Explain what is meant by ‘macroeconomics’ and why some economists think that it is different to standard neoclassical economics. explain with graphs please.
- 4.What is meant by the term neoclassical counterrevo-lution? What are its principal arguments, and how valid do you think they are? Explain your answer.1. Supply and demand in the neoclassical economy Consider an economy in which the consumption, investment and production functions are as follows. C = 90 + 0.7(Y − T) I = 250 − 20r F(K, L) = AK0.5L0.5 The capital and labor supply are equal to 100 each, A=10, G = 200 and T = 200. Compute the equilibrium values of output, overall labor income, consumption, public savings, national savings, investment, and the interest rate. Suppose now government spending increases to G=300 (everything else stays the same). What happens to output, consumption, savings, investment and the interest rate? Compute the new values for these variables.Identify and briefly explain the neoclassical argument and the key building blocks of neoclassical approach. Briefly explain what is meant by the term "menu costs" from a macroeconomic perspective?