ECS4861 Assignment 2 (COMPLETE ANSWERS) 2026 - DUE 1 July 2026

ECS4861 Assignment 2 (COMPLETE ANSWERS) 2026 - DUE 1 July 2026; 100% TRUSTED Complete, trusted solutions and explanations. For assistance, Whats-App 0.8.1..2.7.8..3.3.7.2... Ensure your success with us...... How do new classical models differ from the old classical model? New classical models assume imperfect information.  New classical models assume continuous market clearing. In new classical models, the supply of labour by households and output by firms depends on relative prices. All the statements are correct. ECS4861-26-Y  Welcome Message  Assessment 2 Question 15 Correct Mark 1 out of 1 QUIZ Questions 33 to 40 are based on the following: The Global Financial Crisis and Great Recession The great recession originated in the financial markets of the United States of America in 2007. It was triggered by fallinghouse prices which led to the so-called “subprime mortgage” crisis. Preceding the crisis there was a rapid increase inmortgages to less creditworthy borrowers. A combination of falling house prices and default mortgage payments led to thefailure and near failure of major financial institutions in America. This sent shock-waves across the financial markets of theworld and resulted in a loss of confidence in financial markets and institutions, with the result that share prices fell sharply,investor confidence plunged and the availability of credit to firms and households was severely curtailed. This had the resultthat consumption spending by households and investment spending by firms declined which had a major impact on the levelof output and unemployment. Questions 33 to 40 refer to the diagram on page 397 of the textbook, Snowdon and Vane (2005): a rightward shift of the short-run aggregate supply curve. a leftward shift of the aggregate demand curve.  a leftward shift of the long-run aggregate supply curve. a rightward shift of the aggregate demand curve. ECS4861-26-Y  Welcome Message  Assessment 2 Question 16 Incorrect Mark 0 out of 1 QUIZ Which of the following are most likely to lead to low inflation at the natural rate of unemployment? Discretionary monetary policy. Time inconsistency. Rational expectations.  None of the statements is correct. ECS4861-26-Y  Welcome Message  Assessment 2 Question 17 Correct Mark 1 out of 1 QUIZ In new Keynesian economics: A supply shock which decreased the level of output and demand for labour. monetary policy should be guided by explicit rules to control inflation.  monetary policy can only be effective in reducing inflation if it follows the ‘Taylor rule’. monetary policy should follow a fixed money supply growth rule to control inflation. ECS4861-26-Y  Welcome Message  Assessment 2 Question 18 Correct Mark 1 out of 1 QUIZ In Lucas’s monetary equilibrium business cycle theory (MEBCT), pro-cyclical changes in inflation and real output are due to: All the statements are correct.  firms thinking that an increase in the price of their goods is a real increase. workers thinking that an increase in their money wages is a real increase. the signal extraction problem. ECS4861-26-Y  Welcome Message  Assessment 2 Question 19 Correct Mark 1 out of 1 QUIZ Refer to Snowdon and Vane (2005: 396-401). Nominal price rigidity arises at point E : because firms have some control over the price of their products. due to coordination problems between firms. All the statements are correct.  due to the existence of menu costs. 1 ECS4861-26-Y  Welcome Message  Assessment 2 Question 20 Correct Mark 1 out of 1 QUIZ In what respect is new Keynesian economics similar to orthodox Keynesian economics? Stabilization policies can help the economy adjust to aggregate demand shocks.  A Phillips curve trade-off between inflation and unemployment is possible in the long run. Fiscal policy can be used to permanently increase output and employment. Monetary policy can be used to permanently increase output and employment. ECS4861-26-Y  Welcome Message  Assessment 2 Question 21 Correct Mark 1 out of 1 QUIZ The weak version of the rational expectations hypothesis (REH) implies that workers, consumers and firms: have perfect foresight. maximize their utility by taking into account all the relevant information.  can make systematic forecasting mistakes. know the true model of the economy (or relevant part thereof). ECS4861-26-Y  Welcome Message  Assessment 2 Question 22 Correct Mark 1 out of 1 QUIZ In new classical models of the economy, expectations are: Consistent with the maximization hypothesis. All the statements are correct.  Consistent with the model. Endogenous to the model. ECS4861-26-Y  Welcome Message  Assessment 2 Question 23 Correct Mark 1 out of 1 QUIZ The strong version of the rational expectations hypothesis implies that: All the statements are correct.  forecast errors are unbiased. economic agents know the full probability distribution of outcomes following relevant events (such as a change inmonetary policy). forecast errors are serially uncorrelated. ECS4861-26-Y  Welcome Message  Assessment 2 Question 24 Incorrect Mark 0 out of 1 QUIZ Which of the following are most likely to lead to low inflation at the natural rate of unemployment? None of the statements is correct. Time inconsistency. Rational expectations.  Discretionary monetary policy. ECS4861-26-Y  Welcome Message  Assessment 2 Question 25 Correct Mark 1 out of 1 QUIZ The reason firms move off their notional demand for labour curve is because: None of the statements is correct.  the notional demand for labour is lower than the effective demand for labour. fully flexible prices and real wages have a destabilizing effect on firms' demand for labour. prices and real wages are rigid in the long run. ECS4861-26-Y  Welcome Message  Assessment 2 Question 26 Correct Mark 1 out of 1 QUIZ The weak version of the rational expectations hypothesis (REH) implies that: no information is ignored in forming expectations. expectations change only if new relevant information becomes available.  forecasts of the inflation rate may be biased in a certain direction because economic agents do not have completeknowledge of how the economy works. there is serial correlation of forecast errors over time. ECS4861-26-Y  Welcome Message  Assessment 2 Question 27 Correct Mark 1 out of 1 QUIZ The main aim of the new Keynesian research effort was to: There was already ample evidence for price and wage rigidity. show that both demand and supply shocks have an impact on output show that price and wage rigidity can be explained in terms of optimising behaviour.  find empirical evidence to support price and wage rigidity. ECS4861-26-Y  Welcome Message  Assessment 2 Question 28 Correct Mark 1 out of 1 QUIZ In new classical explanations of aggregate supply: deviations from the natural rate of unemployment only occur when prices are different to what was expected.  None of the statements is correct. Anticipated monetary changes only affect real output and employment in the short run. Unanticipated monetary changes only affect real output and employment in the long run. ECS4861-26-Y  Welcome Message  Assessment 2 Question 29 Correct Mark 1 out of 1 QUIZ Which of the following empirical regularities is/are explained by the new Keynesian model? Higher inflation follows higher real output. All the statements are correct.  Increases in employment coincide with increased real output. Changes in the money supply precede changes in real output. ECS4861-26-Y  Welcome Message  Assessment 2 Question 30 Correct Mark 1 out of 1 QUIZ New Keynesians regard the sacrifice ratio as positive because: the monetary authority must establish its credibility for its policies to be effective. there is a positive relationship between inflation and output in the long run. prices and wages are flexible in the long run. contractionary policies are required to bring down inflation.  ECS4861-26-Y  Welcome Message  Assessment 2 Question 31 Correct Mark 1 out of 1 QUIZ According to the new Keynesian theory of the business cycle, which of the following would have been an appropriate policyto counteract the increase in involuntary unemployment during the Great Recession? Increased price competition between firms. Increasing the budget deficit and lowering interest rates.  Creation of a more flexible labour market. Nationalisation of key industries. ECS4861-26-Y  Welcome Message  Assessment 2 Question 32 Correct Mark 1 out of 1 QUIZ Like the Bank of England, the South African Reserve Bank (SARB): has goal independence but not instrument independence. has instrument independence but not goal independence.  is responsible for setting the inflation target. has both goal and instrument independence. ECS4861-26-Y  Welcome Message  Assessment 2 Question 33 Correct Mark 1 out of 1 QUIZ Which of the following is recommended by new Keynesians as a way of lowering high levels of structural unemployment? A greater share of company profits paid out as dividends to shareholders. Lower unemployment benefits.  All the statements are correct. Lower income tax leading to greater disposable income on the part of workers. ECS4861-26-Y  Welcome Message  Assessment 2 Question 34 Incorrect Mark 0 out of 1 QUIZ The Global Financial Crisis and Great Recession The great recession originated in the financial markets of the United States of America in 2007. It was triggered by fallinghouse prices which led to the so-called “subprime mortgage” crisis. Preceding the crisis there was a rapid increase inmortgages to less creditworthy borrowers. A combination of falling house prices and default mortgage payments led to thefailure and near failure of major financial institutions in America. This sent shock-waves across the financial markets of theworld and resulted in a loss of confidence in financial markets and institutions, with the result that share prices fell sharply,investor confidence plunged and the availability of credit to firms and households was severely curtailed. This had the resultthat consumption spending by households and investment spending by firms declined which had a major impact on the levelof output and unemployment. Questions 33 to 40 refer to the diagram on page 397 of the textbook, Snowdon and Vane (2005): If prices and wages are fully flexible: the aggregate demand curve does not shift and the economy stays at point E in diagram (a). the short-run aggregate supply curve shifts downwards and the economy moves to point E in diagram (a).  the aggregate demand curve shifts to the left and the economy moves to point E in diagram (a). the aggregate demand curve shifts to the left and the economy moves to point E in diagram (a). 0 2 2 1 ECS4861-26-Y  Welcome Message  Assessment 2 Question 35 Correct Mark 1 out of 1 QUIZ What do new classical models have in common with orthodox monetarism? A Phillips curve trade-off is possible in the short run. The natural rate of unemployment / output. All the statements are correct.  The classical dichotomy. ECS4861-26-Y  Welcome Message  Assessment 2 Question 36 Correct Mark 1 out of 1 QUIZ Which of the following describes how people acquire information according to the rational expectations hypothesis? They ignore publicly available information because this is already reflected in prices. They search for information up to the point where the expected marginal cost of further information equals theexpected marginal value thereof.  They ignore historic data because this is already reflected in prices. Only new information is taken into account in decision-making. ECS4861-26-Y  Welcome Message  Assessment 2 Question 37 Correct Mark 1 out of 1 QUIZ According to the standard new Keynesian model of the business cycle, the severity of the recession was intensified by: the unwillingness of banks to lend money. sticky prices and wages.  the mispricing of risk. ECS4861-26-Y  Welcome Message  Assessment 2 Question 38 Correct Mark 1 out of 1 QUIZ According to the dynamic time inconsistency analysis of Kydland and Prescott (1977), a monetary policy rule: is less likely than discretionary monetary policy to achieve the optimal combination of inflation and unemployment overtime. may tempt the central bank to deviate from announced policy commitments in the future.  helps to lower the natural rate of unemployment. will lead to lower inflation and higher unemployment over time than would be the case under discretionary monetarypolicy. ECS4861-26-Y  Welcome Message  Assessment 2 Question 39 Correct Mark 1 out of 1 QUIZ What do new classical models have in common with the old classical model? Perfectly flexible wages and prices. Workers choose to be unemployed. The classical dichotomy. All the above.  ECS4861-26-Y  Welcome Message  Assessment 2 Question 40 Correct Mark 1 out of 1 QUIZ The strong version of the rational expectations hypothesis implies that workers, consumers and firms: form expectations that coincide with the outcomes predicted by the relevant model of the economy.  make choices based on perfect information. do not make forecast errors based on publicly available information. have perfect foresight. ECS4861-26-Y  Welcome Message  Assessment 2 Question 41 Incorrect Mark 0 out of 1 QUIZ Which of the following propositions is compatible with new Keynesian economics? Monopolistic competition.  The weak version of Say's Law. Correct. New Keynesians emphasise the role played by various market imperfections contributing to wage and pricerigidities and the effect this may have on the economy's adjustment to changes in aggregate demand and supply.. Rational expectations. ECS4861-26-Y  Welcome Message  Assessment 2 Question 42 Correct Mark 1 out of 1 QUIZ The severity of a recession can be magnified by credit market imperfections in which: there is asymmetric information about creditors. credit rationing takes place. financial institutions are risk averse. All the statements are correct.  ECS4861-26-Y  Welcome Message  Assessment 2 Question 43 Correct Mark 1 out of 1 QUIZ In considering the effect of menu costs on the economy, Mankiw argues that: menu costs help to explain real price rigidities. they may contribute significantly to the duration and severity of recessions.  they represent a significant cost to the individual firm. they are an insignificant cost for the firm and therefore have very little effect on the economy. ECS4861-26-Y  Welcome Message  Assessment 2 Question 44 Correct Mark 1 out of 1 QUIZ In the context of new classical models, Walrasian general equilibrium means that: no trade-off between inflation and unemployment is possible. disequilibrium in demand and supply only occurs when there are unanticipated changes in aggregate demand. trade always takes place at market clearing prices.  voluntary unemployment cannot occur unless economic agents are surprised by new information. ECS4861-26-Y  Welcome Message  Assessment 2 Question 45 Correct Mark 1 out of 1 QUIZ How do new classical models differ from orthodox monetarism? New classical models assume rational rather than adaptive expectations. New classical models do not permit 'money illusion', even in the short run. In new classical models, systematic changes in monetary policy have no effect on real output. All the statements are correct.  ECS4861-26-Y  Welcome Message  Assessment 2 Question 46 Correct Mark 1 out of 1 QUIZ Which of the following statements best summarises Friedman’s view of how expectations of inflation are formed? An increase in the actual inflation rate leads to a rapid acceleration in the expected inflation rate. A change in the expected inflation rate equals the most recent change in the actual inflation rate. The expected inflation rate adjusts quickly to changes in the actual inflation rate. The expected inflation rate adjusts gradually to changes in the actual inflation rate.  ECS4861-26-Y  Welcome Message  Assessment 2 Question 47 Correct Mark 1 out of 1 QUIZ The Lucas critique of econometric models as a guide to policy argues that: policy changes lead to changes in expectations which thus change the parameters of the equations beingestimated, such that econometric forecasts that do not take this into account are unreliable.  All the statements are correct. expectations change with changes in policy and therefore econometric policy evaluation is impossible. only unannounced or unsystematic changes in monetary policy have any real effects on the economy. ECS4861-26-Y  Welcome Message  Assessment 2 Question 48 Correct Mark 1 out of 1 QUIZ Krugman (2000) argues that macroeconomic models that are more fully specified with regard to the rationality postulate andtheir micro-foundations: are more realistic and thus a better guide to policy than cruder ad hoc models such as the IS-LM model. None of the statements is correct.  are more accurate than simpler ad hoc models such as the IS-LM model. are more rigorous theoretically and should thus replace simpler ad hoc models such as the IS-LM model. ECS4861-26-Y  Welcome Message  Assessment 2 Question 49 Correct Mark 1 out of 1 QUIZ Which of the following statements best summarises Friedman’s view of how expectations of inflation are formed? The expected inflation rate adjusts quickly to changes in the actual inflation rate. An increase in the actual inflation rate leads to a rapid acceleration in the expected inflation rate. A change in the expected inflation rate equals the most recent change in the actual inflation rate. The expected inflation rate adjusts gradually to changes in the actual inflation rate.  ECS4861-26-Y  Welcome Message  Assessment 2 Question 50 Correct Mark 1 out of 1 QUIZ In retrospect, the main contribution of new classical economics to the development of macroeconomics has been: the policy ineffectiveness proposition. monetary equilibrium business cycle theory (MEBCT). the signal extraction problem. rational expectations and dynamic time inconsistency policy analysis.  ECS4861-26-Y  Welcome Message  Assessment 2 Question 1 Not yet answered Marked out of 1 QUIZ The main difference between Friedman’s natural rate of unemployment and the non-accelerating inflation rate ofunemployment (NAIRU) is that: the Phillips curve is vertical at the natural rate of unemployment. supply-side factors do not affect the NAIRU. changes in aggregate demand can affect the NAIRU. the NAIRU is determined independently of the inflation rate. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 2 Not yet answered Marked out of 1 QUIZ According to the dynamic time inconsistency analysis of Kydland and Prescott (1977), a monetary policy rule: helps to lower the natural rate of unemployment. is less likely than discretionary monetary policy to achieve the optimal combination of inflation and unemployment overtime. will lead to lower inflation and higher unemployment over time than would be the case under discretionary monetarypolicy. may tempt the central bank to deviate from announced policy commitments in the future. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 3 Not yet answered Marked out of 1 QUIZ The Lucas critique of econometric models as a guide to policy argues that: All the statements are correct. policy changes lead to changes in expectations which thus change the parameters of the equations being estimated,such that econometric forecasts that do not take this into account are unreliable. only unannounced or unsystematic changes in monetary policy have any real effects on the economy. expectations change with changes in policy and therefore econometric policy evaluation is impossible. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 4 Not yet answered Marked out of 1 QUIZ The strong version of the rational expectations hypothesis implies that: economic agents know the full probability distribution of outcomes following relevant events (such as a change inmonetary policy). All the statements are correct. forecast errors are serially uncorrelated. forecast errors are unbiased. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 5 Not yet answered Marked out of 1 QUIZ According to new Keynesians, firms may pay above-inflation increases in workers’ wages because: None of the statements is correct. They may confuse an increase in the general price level with an increase in the relative price of the goods they produce. lower wages may lower worker productivity. They may confuse an increase in the general price level with an increase in the relative price of the goods they produce. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 6 Not yet answered Marked out of 1 QUIZ A fundamental challenge faced by Keynesians during the 1970s was to: include expectations in their models. All the statements are correct. give microeconomic explanations for non-market clearing. allow for supply shocks in their models. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 7 Not yet answered Marked out of 1 QUIZ According to new Keynesians, firms may pay above-inflation increases in workers’ wages because: None of the statements is correct. they may wish to avoid the costs of possible strike action by trade unions. They may confuse an increase in the general price level with an increase in the relative price of the goods they produce. lower wages may lower worker productivity. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 8 Not yet answered Marked out of 1 QUIZ Involuntary unemployment increases: because the lower real wage increases the supply of labour. due to nominal wage rigidity at w . because the decrease in output lowers the demand for labour. All the statements are correct. Clear my choice 0 ECS4861-26-Y  Welcome Message  Assessment 2 Question 9 Not yet answered Marked out of 1 QUIZ Both new classical economists and (most) new Keynesians include the rational expectations hypothesis (REH) in theirmodels. The main difference between the two is that: All the statements are correct. new classical economists combine it with the neutrality of money while new Keynesians combine it with the non-neutrality of money. new classical economists combine it with perfectly flexible prices and wages while new Keynesians combine it withsticky wages and prices. new classical economics relies on the strong version of REH while new Keynesians only accept the weak versionthereof. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 10 Not yet answered Marked out of 1 QUIZ Krugman (2000) explains how the development of micro-foundations for the aggregate supply function was most successfulas regards: the explanation of menu costs. the Lucas signal extraction confusion hypothesis. the rational expectations hypothesis. the natural rate hypothesis. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 11 Not yet answered Marked out of 1 QUIZ How does new Keynesian economics differ from orthodox Keynesian economics? New Keynesian economics assumes continuous market clearing. In new Keynesian theory, monetary policy is more effective than fiscal policy in restoring aggregate demand. In new Keynesian models, money is neutral in the short run. New Keynesian economics tries to explain why wages and prices are sticky. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 12 Not yet answered Marked out of 1 QUIZ Lucas’s monetary theory of the business cycle: All the statements are correct. relies on the signal extraction problem. assumes that economic agents have imperfect information about the economy. helps to explain why output and inflation tend to move in the same direction over the course of the business cycle. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 13 Not yet answered Marked out of 1 QUIZ In the long run: there is voluntary unemployment L -L . price and wage flexibility ensure that the economy moves back to output level Y . there is involuntary unemployment L -L . the fall in aggregate demand leads an increase in the price level and a decrease in real wages. Clear my choice 0 1 0 0 1 ECS4861-26-Y  Welcome Message  Assessment 2 Question 14 Not yet answered Marked out of 1 QUIZ How do new classical models differ from the old classical model? New classical models assume imperfect information. New classical models assume continuous market clearing. In new classical models, the supply of labour by households and output by firms depends on relative prices. All the statements are correct. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 15 Not yet answered Marked out of 1 QUIZ Questions 33 to 40 are based on the following: The Global Financial Crisis and Great Recession The great recession originated in the financial markets of the United States of America in 2007. It was triggered by fallinghouse prices which led to the so-called “subprime mortgage” crisis. Preceding the crisis there was a rapid increase inmortgages to less creditworthy borrowers. A combination of falling house prices and default mortgage payments led to thefailure and near failure of major financial institutions in America. This sent shock-waves across the financial markets of theworld and resulted in a loss of confidence in financial markets and institutions, with the result that share prices fell sharply,investor confidence plunged and the availability of credit to firms and households was severely curtailed. This had the resultthat consumption spending by households and investment spending by firms declined which had a major impact on the levelof output and unemployment. Questions 33 to 40 refer to the diagram on page 397 of the textbook, Snowdon and Vane (2005): a rightward shift of the short-run aggregate supply curve. a leftward shift of the aggregate demand curve. a leftward shift of the long-run aggregate supply curve. a rightward shift of the aggregate demand curve. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 16 Not yet answered Marked out of 1 QUIZ Which of the following are most likely to lead to low inflation at the natural rate of unemployment? Discretionary monetary policy. Time inconsistency. Rational expectations. None of the statements is correct. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 17 Not yet answered Marked out of 1 QUIZ In new Keynesian economics: A supply shock which decreased the level of output and demand for labour. monetary policy should be guided by explicit rules to control inflation. monetary policy can only be effective in reducing inflation if it follows the ‘Taylor rule’. monetary policy should follow a fixed money supply growth rule to control inflation. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 18 Not yet answered Marked out of 1 QUIZ In Lucas’s monetary equilibrium business cycle theory (MEBCT), pro-cyclical changes in inflation and real output are due to: All the statements are correct. firms thinking that an increase in the price of their goods is a real increase. workers thinking that an increase in their money wages is a real increase. the signal extraction problem. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 19 Not yet answered Marked out of 1 QUIZ Refer to Snowdon and Vane (2005: 396-401). Nominal price rigidity arises at point E : because firms have some control over the price of their products. due to coordination problems between firms. All the statements are correct. due to the existence of menu costs. Clear my choice 1 ECS4861-26-Y  Welcome Message  Assessment 2 Question 20 Not yet answered Marked out of 1 QUIZ In what respect is new Keynesian economics similar to orthodox Keynesian economics? Stabilization policies can help the economy adjust to aggregate demand shocks. A Phillips curve trade-off between inflation and unemployment is possible in the long run. Fiscal policy can be used to permanently increase output and employment. Monetary policy can be used to permanently increase output and employment. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 21 Not yet answered Marked out of 1 QUIZ The weak version of the rational expectations hypothesis (REH) implies that workers, consumers and firms: have perfect foresight. maximize their utility by taking into account all the relevant information. can make systematic forecasting mistakes. know the true model of the economy (or relevant part thereof). Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 22 Not yet answered Marked out of 1 QUIZ In new classical models of the economy, expectations are: Consistent with the maximization hypothesis. All the statements are correct. Consistent with the model. Endogenous to the model. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 23 Not yet answered Marked out of 1 QUIZ The strong version of the rational expectations hypothesis implies that: All the statements are correct. forecast errors are unbiased. economic agents know the full probability distribution of outcomes following relevant events (such as a change inmonetary policy). forecast errors are serially uncorrelated. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 24 Not yet answered Marked out of 1 QUIZ Which of the following are most likely to lead to low inflation at the natural rate of unemployment? None of the statements is correct. Time inconsistency. Rational expectations. Discretionary monetary policy. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 25 Not yet answered Marked out of 1 QUIZ The reason firms move off their notional demand for labour curve is because: None of the statements is correct. the notional demand for labour is lower than the effective demand for labour. fully flexible prices and real wages have a destabilizing effect on firms' demand for labour. prices and real wages are rigid in the long run. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 26 Not yet answered Marked out of 1 QUIZ The weak version of the rational expectations hypothesis (REH) implies that: no information is ignored in forming expectations. expectations change only if new relevant information becomes available. forecasts of the inflation rate may be biased in a certain direction because economic agents do not have completeknowledge of how the economy works. there is serial correlation of forecast errors over time. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 27 Not yet answered Marked out of 1 QUIZ The main aim of the new Keynesian research effort was to: There was already ample evidence for price and wage rigidity. show that both demand and supply shocks have an impact on output show that price and wage rigidity can be explained in terms of optimising behaviour. find empirical evidence to support price and wage rigidity. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 28 Not yet answered Marked out of 1 QUIZ In new classical explanations of aggregate supply: deviations from the natural rate of unemployment only occur when prices are different to what was expected. None of the statements is correct. Anticipated monetary changes only affect real output and employment in the short run. Unanticipated monetary changes only affect real output and employment in the long run. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 29 Not yet answered Marked out of 1 QUIZ Which of the following empirical regularities is/are explained by the new Keynesian model? Higher inflation follows higher real output. All the statements are correct. Increases in employment coincide with increased real output. Changes in the money supply precede changes in real output. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 30 Not yet answered Marked out of 1 QUIZ New Keynesians regard the sacrifice ratio as positive because: the monetary authority must establish its credibility for its policies to be effective. there is a positive relationship between inflation and output in the long run. prices and wages are flexible in the long run. contractionary policies are required to bring down inflation. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 31 Not yet answered Marked out of 1 QUIZ According to the new Keynesian theory of the business cycle, which of the following would have been an appropriate policyto counteract the increase in involuntary unemployment during the Great Recession? Increased price competition between firms. Increasing the budget deficit and lowering interest rates. Creation of a more flexible labour market. Nationalisation of key industries. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 32 Not yet answered Marked out of 1 QUIZ Like the Bank of England, the South African Reserve Bank (SARB): has goal independence but not instrument independence. has instrument independence but not goal independence. is responsible for setting the inflation target. has both goal and instrument independence. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 33 Not yet answered Marked out of 1 QUIZ Which of the following is recommended by new Keynesians as a way of lowering high levels of structural unemployment? A greater share of company profits paid out as dividends to shareholders. Lower unemployment benefits. All the statements are correct. Lower income tax leading to greater disposable income on the part of workers. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 35 Not yet answered Marked out of 1 QUIZ What do new classical models have in common with orthodox monetarism? A Phillips curve trade-off is possible in the short run. The natural rate of unemployment / output. All the statements are correct. The classical dichotomy. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 36 Not yet answered Marked out of 1 QUIZ Which of the following describes how people acquire information according to the rational expectations hypothesis? They ignore publicly available information because this is already reflected in prices. They search for information up to the point where the expected marginal cost of further information equals theexpected marginal value thereof. They ignore historic data because this is already reflected in prices. Only new information is taken into account in decision-making. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 37 Not yet answered Marked out of 1 QUIZ According to the standard new Keynesian model of the business cycle, the severity of the recession was intensified by: the unwillingness of banks to lend money. sticky prices and wages. the mispricing of risk. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 39 Not yet answered Marked out of 1 QUIZ What do new classical models have in common with the old classical model? Perfectly flexible wages and prices. Workers choose to be unemployed. The classical dichotomy. All the above. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 40 Not yet answered Marked out of 1 QUIZ The strong version of the rational expectations hypothesis implies that workers, consumers and firms: form expectations that coincide with the outcomes predicted by the relevant model of the economy. make choices based on perfect information. do not make forecast errors based on publicly available information. have perfect foresight. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 41 Not yet answered Marked out of 1 QUIZ Which of the following propositions is compatible with new Keynesian economics? Monopolistic competition. The weak version of Say's Law. Correct. New Keynesians emphasise the role played by various market imperfections contributing to wage and pricerigidities and the effect this may have on the economy's adjustment to changes in aggregate demand and supply.. Rational expectations. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 42 Not yet answered Marked out of 1 QUIZ The severity of a recession can be magnified by credit market imperfections in which: there is asymmetric information about creditors. credit rationing takes place. financial institutions are risk averse. All the statements are correct. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 43 Not yet answered Marked out of 1 QUIZ In considering the effect of menu costs on the economy, Mankiw argues that: menu costs help to explain real price rigidities. they may contribute significantly to the duration and severity of recessions. they represent a significant cost to the individual firm. they are an insignificant cost for the firm and therefore have very little effect on the economy. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 44 Not yet answered Marked out of 1 QUIZ In the context of new classical models, Walrasian general equilibrium means that: no trade-off between inflation and unemployment is possible. disequilibrium in demand and supply only occurs when there are unanticipated changes in aggregate demand. trade always takes place at market clearing prices. voluntary unemployment cannot occur unless economic agents are surprised by new information. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 45 Not yet answered Marked out of 1 QUIZ How do new classical models differ from orthodox monetarism? New classical models assume rational rather than adaptive expectations. New classical models do not permit 'money illusion', even in the short run. In new classical models, systematic changes in monetary policy have no effect on real output. All the statements are correct. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 46 Not yet answered Marked out of 1 QUIZ Which of the following statements best summarises Friedman’s view of how expectations of inflation are formed? An increase in the actual inflation rate leads to a rapid acceleration in the expected inflation rate. A change in the expected inflation rate equals the most recent change in the actual inflation rate. The expected inflation rate adjusts quickly to changes in the actual inflation rate. The expected inflation rate adjusts gradually to changes in the actual inflation rate. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 47 Not yet answered Marked out of 1 QUIZ The Lucas critique of econometric models as a guide to policy argues that: policy changes lead to changes in expectations which thus change the parameters of the equations being estimated,such that econometric forecasts that do not take this into account are unreliable. All the statements are correct. expectations change with changes in policy and therefore econometric policy evaluation is impossible. only unannounced or unsystematic changes in monetary policy have any real effects on the economy. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 48 Not yet answered Marked out of 1 QUIZ Krugman (2000) argues that macroeconomic models that are more fully specified with regard to the rationality postulate andtheir micro-foundations: are more realistic and thus a better guide to policy than cruder ad hoc models such as the IS-LM model. None of the statements is correct. are more accurate than simpler ad hoc models such as the IS-LM model. are more rigorous theoretically and should thus replace simpler ad hoc models such as the IS-LM model. Clear my choice ECS4861-26-Y  Welcome Message  Assessment 2 Question 49 Not yet answered Marked out of 1 QUIZ Which of the following statements best summarises Friedman’s view of how expectations of inflation are formed? The expected inflation rate adjusts quickly to changes in the actual inflation rate. An increase in the actual inflation rate leads to a rapid acceleration in the expected inflation rate. A change in the expected inflation rate equals the most recent change in the actual inflation rate. The expected inflation rate adjusts gradually to changes in the actual inflation rate.