Econ310_Notes20101116a - OtherMacroModels(11/16/2010)...

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Other Macro Models (11/16/2010) Econ 310-004 Definitions expectations  – economic actor prediction of future macroeconomic conditions (especially  inflation) static expectations  – (classical) play no role in decisions erratic expectations  – (Keynesian) animal spirits; all over the map; exogenous in an  unpredictable way adaptive expectations  – (monetarist) use historical data rational expectations  – (new classical) use all information; no systematic error Say’s Law  – total supply of goods and services will equal total demand derived from  consumption; a general glut (economy-wide over-supply) is impossible money illusion  – nominal vs. real confusion (wages or prices) crowding out  – fiscal policy is ineffective because a rise in government spending induces an  opposing decline in private investment and net exports, with the net effect being unchanged  output menu costs  – because reprinting menus costs money, there are rigidities preventing price  flexibility due to inflation or deflation efficiency wage  – managers pay workers more than the market clearing wage to increase 
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This note was uploaded on 01/26/2011 for the course ECON 310 taught by Professor Staff during the Fall '08 term at George Mason.

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Econ310_Notes20101116a - OtherMacroModels(11/16/2010)...

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