Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
7th Edition
ISBN: 9780134472669
Author: Blanchard
Publisher: PEARSON
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Chapter 16, Problem 4QAP
To determine
To know:Interpretation of the given statement.
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Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
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- Explain why changes in consumption are unpredictable if consumers obey the permanent-income hypotheses and have rational expectations.arrow_forwardAssume that the housing market is in equilibrium in year 1. In year 2, the mortgage rate that banks charge consumers decreases, but producers are not affected. Also in year 2, the cost of lumber used to build homes decreases. Which of the following is most likely to be the equilibrium change? a The equilibrium will be at point C before the change in expectations and point B after the change b The equilibrium will be at point A before the change in expectations and point B after the change c The equilibrium will be at point A before the change in expectations and point E after the change d The equilibrium will be at point E before the change in expectations and point A after the changearrow_forwardAssume that the housing market is in equilibrium in year 1. In year 2, the mortgage rate that banks charge consumers increases, but producers are not affected. Which of the following is most likely to be the equilibrium change? a The equilibrium will be at point C before the change in expectations and point A after the change b The equilibrium will be at point A before the change in expectations and point B after the change c The equilibrium will be at point A before the change in expectations and point C after the change d The equilibrium will be at point E before the change in expectations and point C after the changearrow_forward
- Assume that the housing market is in equilibrium in year 1. In year 2, the mortgage rate that banks charge consumers decreases, but producers are not affected. Which of the following is most likely to be the equilibrium change? a The equilibrium will be at point C before the change in expectations and point A after the change b The equilibrium will be at point A before the change in expectations and point B after the change c The equilibrium will be at point A before the change in expectations and point C after the change d The equilibrium will be at point E before the change in expectations and point C after the changearrow_forwardCompare and contrastadaptive expectations and rationalexpectations.arrow_forwardWould it make sense to argue that rational expectations economics is an extreme version of neoclassicaleconomics? Explain.arrow_forward
- Suppose you are the president of a hypothetical economy. You have to fix healthcare and run the automobile industry . But Swine flu is breaking all over. a) We know that the economy also suffers from sour expectations about future productivity. Represent in a neatly drawn ISLM figure that, all else equal, those expectations, in conjunction with the flu outbreak described in part A above, could result in a decline in GDP and a decline in real interest rates without any change in the price level. b) Why do prices not rise in the scenario described in part A?arrow_forwardECON 2: Principles of Macroeconomic Quantitative Reasoning Assignment: Consumer Spending 2 Instructions: Your responses should include detailed flow charts (explanations) and graphical illustrations Graphically illustrate and explain what happens to consumer spending when consumers become more optimistic about the future and their expectations rise. Graphically illustrate and explain what happens to consumer spending in response to an increase in the interest rate. Graphically illustrate what happens to consumer spending in response to an increase in consumer income.arrow_forwardRational expectations theory assumes Multiple Cholce consumer behavior is static. consumers will change their behavior, but it takes time. consumers will adjust to their current situation immediately consumers lack full information and would benefit from improved expectationsarrow_forward
- Assume that the housing market is in equilibrium in year 1. In year 2, the mortgage rate that banks charge consumers decreases, but producers are not affected. Which of the following is most likely to be the equilibrium change? Price D. Quantity Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. The equilibrium will be at point C before the change in expectations and point A after the a change The equilibrium will be at point A before the change in expectations and point B after the b change The equilibrium will be at point A before the change in expectations and point C after the change The equilibrium will be at point E before the change in expectations and point C after the d change [3 Fulls 40 laarrow_forwardexplain whether each of the following statements is true or false. Q) If real interest rates become negative, the neoclassical model of investment predicts there is now no limit to how much capital firms want to purchase.arrow_forwardAccording to the neoclassical model, when the Federal Reserve implements expansionary monetary policy, a aggregate demand will decrease, price level will decrease, and output will remain the same. b aggregate demand will decrease, price level will decrease, and output will increase. c aggregate demand will increase, price level will increase, and output will remain the same. d aggregate demand will increase, price level will increase, and output will increase.arrow_forward
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