
a)
Fundamental conclusion of the classical model of the price level
a)

Explanation of Solution
The classical model of the price level concludes that since the
Introduction: The classical model of price indicates that economy is flowing freely and prices can be adjusted according to the ups and downs in the economy such as in good economic condition, prices will go up.
b)
Fundamental conclusion of Keynesian economics
b)

Explanation of Solution
According to the fundamental conclusion of Keynesian economics, variations in aggregate demand impact the
Introduction: According to Keynesian economics, the rigidity in levels of price can fluctuate other components such as spending, investment, consumption by affecting the output level.
c)
Fundamental conclusion of Monetarism
c)

Explanation of Solution
The fundamental conclusion of Monetarism specifies that Business cycles and changes in the money supply are related. According to this theory, the most important factors affecting the rate of economic development and the behavior of the business cycle are the changes in supply of money.
Introduction: The main aim of
d)
Fundamental conclusion of the natural rate hypothesis
d)

Explanation of Solution
The natural rate hypothesis conclude that the
Introduction: The theory of natural rates contained two supporting hypotheses from which first specifies that monetary policy has no bearing on the natural rate of unemployment. Furthermore, there is no long-term trade-off between inflation and the departure of unemployment from the natural rate.
e)
Fundamental conclusion of Rational expectations
e)

Explanation of Solution
According to fundamental conclusion of rational expectations, by utilizing of all available information, individuals and business organizations can come to the best decisions. This theory uses historical data rather than real time data.
Introduction: the theory of rational expectations states that individuals base their selections and decisions according to the best available information in the market and take note of historical trends.
f)
Fundamental conclusion of Real business cycle theory
f)

Explanation of Solution
Real business cycle theory concludes that the vertical aggregate supply curve shifts as a result of variations in total factor productivity growth, which in turn causes fluctuations in the business cycle. This theory supports by offering an integrated method for understanding the theory of growth and fluctuations.
Introduction: Real-business-cycle theory depicts that changes in technology lead to changes in output and employment because the economy's capacity to transform inputs into outputs fluctuates.
Chapter 35 Solutions
Krugman's Economics For The Ap® Course
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