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ECON 1110 Problem Set 12

ECON 1110 Problem Set 12 - the classical model 4 How would...

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ECON 1110 Intermediate Macroeconomics Spring 2011 Problem Set 12 1. Explain the implications of the rational expectations assumption for the effectiveness of economic stabilisation policy. 2. Within the new classical framework, how could you explain a sustained departure from full employment output, such as that of the recession of the early 1990’s? 3. Why is this model called the new classical model? How does this model differ from
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Unformatted text preview: the classical model? 4. How would a supply shock, such as an exogenous increase in oil prices, affect the aggregate levels of prices and output in the new classical model? 5. On what grounds do the Keynesians criticise the new classical theory? 6. What are the two key assumptions that new classical economists argue must be present in any useful macroeconomic model?...
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