In long run macroeconomic models the effects of exogenous shocks, price rigidities and expectational errors are fundamental ingredients. True or False
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- new keynesian models assume that the business cycle fluctuations are driven by the aggregate demand components true or falseConsider a standard AD-AS model. The economy is affected by the following sequence of events. In period 1 there is a shock to the economy that is temporary. In period 2, the shock ends. But having observed an inflation outcome different to the inflation target, inflation expectations change from the inflation target to a value exactly equal to the observed inflation in period 1 (that is, expectations are not `anchored’). A temporary positive demand shock would lead to output above potential in period 1, but below potential in period 2. Answer true or false. Please briefly explain your answer.Consider a standard AD-AS model. The economy is affected by the following sequence of events. In period 1 there is a shock to the economy that is temporary. In period 2, the shock ends. But having observed an inflation outcome different to the inflation target, inflation expectations change from the inflation target to a value exactly equal to the observed inflation in period 1 (that is, expectations are not `anchored’). A temporary Negative demand shock would lead to output below potential in period 1, but above potential in period 2. Answer true or false. Please briefly explain your answer.
- Macroeconomic forecasts from different computer models are usually Very different because the models are based on different data sets, different assumptions, and different macroeconomic theories. Very similar because the models use the same data, and standardized assumptions so it does not matter whether a supply-side economist or a Keynesian economist conducts the research. Very similar because the models must conform to high government regulatory standards. About the same because political objectives never conflict with good economic policies. Very different because it is impossible to determine who funded the research.'real business cycle models (RBC) are preferable to traditional Keynesian macroeconomic models.Concept of Hysteresis suggests that the economic shocks affect the economy only for a short time period. True or false, justify your response in either case:
- Distinguish between the following concepts as they apply to Elements of Macroeconomics. Give examples to support your answers a. Keynesian School and Classical schoolb. Aggregate Demand and Aggregate SupplyBetween 2007 and 2009, the United States experienced a severe financial crisis and economic downturn commonly known as the Great Recession. Starting in 2006, housing values fell 30%, causing losses in mortgage-backed securities for families and financial institutions. The recession was marked by a drop in aggregate demand that caused a decline in GDP and an increase in unemployment. QUESTIONS How did the AD/AS equilibrium change over time? Support your claims by referring to your AD/AS model. Select an economic factor (GDP, unemployment, price level) and explain what impact any shifts in AD or AS (or both) had on your chosen factor.Critically evaluate“ the macroeconomics of MMT is a restatement of elementary well-understood Keynesian macroeconomics”
- Short-run fluctuations are all of the following EXCEPT a-sometimes called business cycle movements b-permanent changes to output growth c-called recessions when output falls below trend growth d-temporary movements of output away from the long-run output growth trendAccording to the Keynesian model, demand shocks affect output in the short run because: nominal wages are sticky. employment can be adjusted quickly. real wages do not change as inflation changes. None of the above.Draw and properly label an AD-AS model to show Keynesian, intermediate, and neoclassical zones (6%). Then, briefly explain the levels of unemployment, inflation and real GDP in each zone, and confirm whether or not goals of a macro economy are being achieved in each zone. (14%)