Intermediate Macroeconomics II Assignment 2
■ TRUE/FALSE QUESTIONS
___1. Rational expectations theory implies that the behavior. of individuals may be very different from the behavior of the economy.
___2. Keynesian business cycle theory suggests that government intervention in markets may create disequilibria in supply and demand, thereby exacerbating business cycles.
___3. The money surprise theory states that the government should use its monetary tools to smooth out business cycles.
___4. The real business cycle theory indicates that the government should not attempt to smooth out business cycles.
___5. Macroeconomic analysis teaches that selfish behavior. typically leads to socially efficient outcomes.
___6. Gross national product measures the quantity of goods and services produced within a country over a particular time period.
___7. A competitive equilibrium requires that both consumers and producers take prices as given.
___8. The main difference between the Keynesian sticky wage model and the classical model is that the nominal wage rate is assumed to be fixed in the long run.
___9. Though employment is affected by changes in the real interest rate in the Keynesian sticky wage model, unemployment is not.
___10. The Keynesian sticky wage model predicts that employment, consumption, and investment are procyclical while prices and real wages are countercyclical.
■ SHORT ANSWER QUESTIONS
1. In what sense do different sources of government deficits cause different effects on the economy?
2. How is it that the growth rate of money supply explains long-run inflation?
3. What happened to U.S. interest rates in the 1970s and how did it happen?
4. What two “net” factors comprise the current account surplus?
5. Name one condition under which a current account deficit can be good for a country.