MACROECONOMICS+ACHIEVE 1-TERM AC (LL)
10th Edition
ISBN: 9781319467203
Author: Mankiw
Publisher: MAC HIGHER
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Chapter 16, Problem 3QQ
To determine
Explain the Lucas critique.
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Assume the following macroeconomic conditions in the United States and that US policy makers desire to achieve their three macro-policy goals defined in the usual way.
A. Output has fallen below potential output, creating a large negative output gap.
B. The employment rate has fallen, creating an unemployment rate of 8%.
C. The inflation rate has risen to 10% per year.
Which statement is CORRECT?
Output is too low; the employment rate is too high; and the inflation rate is too high.
Output is too high; the employment rate is too low; and the inflation rate is too low.
Output is too high; the unemployment rate is too high; and inflation rate is too high.
Output is too low; the unemployment rate is too low; and the inflation rate is too high.
Output is too low; the unemployment rate is too high; and the inflation rate is too high.
True or false
Macroeconomics deals with the economy as whole
a. Define “time inconsistency” of economic policy?
b. i) Examine why policy makers might be tempted to renege on an announcement they madeearlier?
ii) In this situation, what is the advantage of a policyrule?
Chapter 16 Solutions
MACROECONOMICS+ACHIEVE 1-TERM AC (LL)
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- True or false question: Although there is no specific founder of macroeconomics, John Maynard Keynes is usually cited as such.arrow_forwardMacroeconomics: The Big Picture – End of Chapter Problem a. How did Milton Friedman alter the consensus that had developed in the aftermath of the Great Depression on how the economy should be managed? He developed policy measures that enable the government to intervene to move the business cycle into recession or growth precisely as needed. He observed that bo0oms, as well as busts, need to be managed to reduce volatile swings in the business cycle. He demonstrated that fiscal policy worked better than monetary policy when fighting recessions. He provided theoretical evidence that the economy is self-correcting in the short run but needs government intervention in the long run. b. What is the current goal of policy makers in managing the economy? To maximize the profits of corporations and the wages of labor To eliminate any and all busts or recessions To reduce the magnitudes of booms and busts To completely eliminate unemploymentarrow_forwardThe purpose is to know if you can define each concept through a clear and precise explanation. Imagine that you are going to explain each term to someone who does not know anything about macroeconomics; With this in mind, the explanation should be as clear and simple as possible (not brief). Write a minimum of three sentences per term.1. investment demand2. surplus3. savings offerarrow_forward
- Long run macroeconomics focuses on economic growth and cyclical unemployment. True or Falsearrow_forwardExplain how policy makers can perfect their craft for the betterment of societyarrow_forwardb) What differences emerge between Keynesian and Classical economists regarding understanding the business cycle and how the economy should best be managed? c) Present an argument where you express support for either a Keynesian approach OR a Classical approach. You should make a case in arguing for only ONE of these two different approaches and use real-world example.arrow_forward
- The primary goal of effective macroeconomic policies is/ are ......................................... Select one: A. Enhances prospects for growth and improved living standards B. To reduce uncertainty and risk in economic decision-making C. Have an impact on how income is distributed across economic classes D. All of the given optionsarrow_forwardBefore the COVID-19 pandemic, we had both very low unemployment and inflation. Then unemployment rose. In the future, unemployment and inflation could change and it’s good to have policy plans in place before either of these problems gets too bad. Imagine that you oversee macroeconomic policy. Start your discussion by responding to these questions and explaining your answers: What are some of the problems, difficulties, or hardships caused by unemployment? What are some of the problems, difficulties, or hardships caused by inflation? If you had to make a choice today between a policy that would head off increases in inflation or increases in unemployment, which one would you choose? Be sure to respond to at least one of your classmates' posts and share your opinion about their decision.arrow_forwardYou read the financial news in The Wall Street Journal every day and subscribe to various government e-mail bulletins about the economy, and you have developed a deep understanding of how macroeconomic variables interact. You are best described as having expectations. adaptive anchored rational O realisticarrow_forward
- What new developments starting in the 1980's have changed macroeconomic thought?arrow_forwardJohn Maynard Keynes spearheaded a new school of macroeconomic theory during the Great Depression. Which of the following represents a Keynesian point of view of macroeconomics?arrow_forwardTo say that economists use the scientific method means that they are using OA. an ongoing process to develop models of the world and then test and evaluate those models. OB. a method to develop recommendations for policy makers to run economies. Oc. a process to develop models that are intended to exactly represent all the details of a system. OD. a method to determine the best course of action for fiscal and monetary policy. How do economists distinguish between models that work and those that don't? OA. They have their models reviewed by other economists. OB. They program their models into computers to test via simulation. Oc. They test their models against real-world data. OD. They publish their model results in academic journals.arrow_forward
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