Not sure which ones are flexible and inf ### Economic Theories and Their PredictionsThis table compares three economic theories: Natural Rate Theory, New Classical Theory (Unanticipated Policy Change), and New Keynesian Theory. It explores their assumptions and predictions for an expansionary policy.#### Assumptions- **Wages and Prices** - Natural Rate Theory: Flexible - New Classical Theory: Flexible - New Keynesian Theory: Sticky- **Expectations** - Natural Rate Theory: Adaptive - New Classical Theory: Rational - New Keynesian Theory: Rational#### Predictions for an Expansionary Policy- **Short-Run Real GDP** - Natural Rate Theory: Increases - New Classical Theory: No Change - New Keynesian Theory: Increases- **Short-Run Price Level** - Natural Rate Theory: Increases - New Classical Theory: Increases - New Keynesian Theory: Increases- **Long-Run Real GDP** - Natural Rate Theory: No Change - New Classical Theory: No Change - New Keynesian Theory: No Change- **Long-Run Price Level** - Natural Rate Theory: Increases - New Classical Theory: Increases - New Keynesian Theory: IncreasesThis chart helps in understanding how different theories view the effects of an expansionary policy, particularly in terms of flexibility of wages and prices and the kind of expectations held by economic agents.

A subfield of economics known as microeconomics examines the characteristics of the households,…

Assumptions Wages and Prices Expectations Predictions for an Expansionary Policy Short-Run Real GDP Short-Run Price Level Long-Run Real GDP Long-Run Price Level Natural Rate Theory New Classical Theory (Unanticipated policy change) New Keynesian Theory

Assumptions Wages and Prices Expectations Predictions for an Expansionary Policy Short-Run Real GDP Short-Run Price Level Long-Run Real GDP Long-Run Price Level Natural Rate Theory New Classical Theory (Unanticipated policy change) New Keynesian Theory

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Not sure which ones are flexible and inf

### Economic Theories and Their Predictions

This table compares three economic theories: Natural Rate Theory, New Classical Theory (Unanticipated Policy Change), and New Keynesian Theory. It explores their assumptions and predictions for an expansionary policy.

#### Assumptions

- **Wages and Prices**
- Natural Rate Theory: Flexible
- New Classical Theory: Flexible
- New Keynesian Theory: Sticky

- **Expectations**
- Natural Rate Theory: Adaptive
- New Classical Theory: Rational
- New Keynesian Theory: Rational

#### Predictions for an Expansionary Policy

- **Short-Run Real GDP**
- Natural Rate Theory: Increases
- New Classical Theory: No Change
- New Keynesian Theory: Increases

- **Short-Run Price Level**
- Natural Rate Theory: Increases
- New Classical Theory: Increases
- New Keynesian Theory: Increases

- **Long-Run Real GDP**
- Natural Rate Theory: No Change
- New Classical Theory: No Change
- New Keynesian Theory: No Change

- **Long-Run Price Level**
- Natural Rate Theory: Increases
- New Classical Theory: Increases
- New Keynesian Theory: Increases

This chart helps in understanding how different theories view the effects of an expansionary policy, particularly in terms of flexibility of wages and prices and the kind of expectations held by economic agents.

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