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Terms in this set (41)
According to the new Keynesian cycle theory of the business cycle, what can trigger a business cycle expansion?
an unexpected increase in the quantity of money, an expected increase in the quantity of money, and an expected increase in government expenditures
In ________ cycle theory, fluctuations in investment driven by fluctuations in business confidence are the main source of fluctuations in AD
In _______ cycle of theory, fluctuations in both investment and consumption expenditure, driven by fluctuation in the growth rate of the quantity of money, are the main sources of fluctuations in AD
In _______ cycle of theory, fluctuations in both investment and consumption expenditure, driven by fluctuation in the growth rate of the quantity of money, are the main sources of fluctuations in AD
Keynesian; monetarist
In _______ cycle theory, the rational expectation of the price level, which is determined by potential GDP and expected AD, determines the money wage rate and position of the SAS curve
In _______ cycle theory, past rational expectations of the current price level influence the money wage rate and the position of the SAS curve
In _______ cycle theory, past rational expectations of the current price level influence the money wage rate and the position of the SAS curve
new classical; new keynesian
According to the RBC theory, the main source of economic fluctuations is a decrease in _______, which ________ investment demand, ________ the demand for loanable funds, and _________ the real interest rate
producitivity growth; decreases; decreases; lowers
The decrease in productivity growth also _______ the demand for labor, _______ the supply of labor, _______ employment, and _______ the real wage rate
decreases; decreases; decreases; lowers
True or False
1. Monetarists assume that the quantity of money increases at a constant rate
2. Fluctuations in interest rates cause business cycles
3. Change in the growth rate of the quantity of money affect AD
1. Monetarists assume that the quantity of money increases at a constant rate
2. Fluctuations in interest rates cause business cycles
3. Change in the growth rate of the quantity of money affect AD
false; false; true
What is the key difference between the new classical theory of the business cycle and the new keynesian theory
NCT believes that only unexpected changes in AD will change real GDP and the new Keynesian theory believes that both expected and unexpected changes in AD will change real GDP
In monetarist business cycle theory, increases in money growth temporarily _________ real GDP and ________ the price level
increase; rise
According to the RBC theory, technological change ________
happens at an uneven pace
MBC theory is that _______ grows at a steady rate while ________ grows at a fluctuating rate
In the MBC theory, the money wage rate is _________
If AD grows faster than potential GDP, __________ gap emerges and if it grows more slowly than potential GDP, ________ gap emerges
In the MBC theory, the money wage rate is _________
If AD grows faster than potential GDP, __________ gap emerges and if it grows more slowly than potential GDP, ________ gap emerges
potential GDP; aggregate demand
sticky;
a recessionary; an inflationary
sticky;
a recessionary; an inflationary
A recession in the monetarist model would start with what kind of shift?
leftward shift in the AD curve
"Intertemporal substitution" in labor supply describes changes in labor supply in response to changes in ___________
the real interest rate
Based on the Keynesian theory, if the economy is at full-employment equilibrium and AD increases then __________
the price level and real GDP both increase
According to the RBC theory, what happens to the graph when productivity increases?
rightward shift of the demand for loanable funds curve
According to the MBC theory, ________ grows at a steady rate and _________ grows at a fluctuating rate
potential GDP; AD