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Chapter 17: Q.c - For Critical Thinking (page 389)

Why might it be the case that even if distorted beliefs alter real GDP and the unemployment rate today, such beliefs might be unlikely to arise among households and firms again in the future? Explain your reasoning.

Short Answer

Expert verified

Monetary breakdown without satisfactory government guidelines is a common example in the financial history of the US.

Step by step solution

01

Given Information

The United States economy encountered an emergency in 2008driven by a subordinate market and subprime contract emergency and declining dollar esteem.

02

Explanation

Since the 1970 s, a few arising nations have started to close the financial hole with the United States. As a rule, this has been because of moving the production of merchandise previously made in the U.S. to nations where they could be gotten for adequately less cash-flow to take care of the expense of delivery in addition to a higher benefit.

Hence, past beliefs in view of dread of monetary downturn and ascent of developing business sectors, the specific reactions to new data, social learning through gatherings, social associations/organizing and the inventory of data by the media distinguish the potential for one-sided convictions among US families and firms.

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Most popular questions from this chapter

What is the most recent approximate interval during which the cyclical unemployment rate has been positive? During what most recent approximate interval was the cyclical unemployment rate negative? Explain briefly.

Consider a situation in which a future president has appointed Federal Reserve leaders who conduct monetary policy much more erratically than in past years. The consequence is that the quantity of money in circulation varies in a much more unsystematic and, hence, hard-to-predict manner. According to the policy irrelevance proposition, is it more or less likely that the Fed's policy actions will cause real GDP to change in the short run? Explain.

Suppose that economists were able to use U.S. economic data to demonstrate that the rational expectations hypothesis is true. Would this be sufficient to demonstrate the validity of the policy irrelevance proposition?

Suppose that people who previously had held jobs become cyclically unemployed at the same time the inflation rate declines. Would the result be a movement along or a shift of the short-run Phillips curve? Explain your reasoning.


Both the traditional Keynesian theory discussed in a previous chapter and the new Keynesian theory considered in this chapter indicate that the short-run aggregate supply curve is horizontal.

a. In terms of their short-ran implications for the price level and real GDP , is there any difference between the two approaches?

b. In terms of their long-ran implications for the price level and real GDP, is there any difference between the two approaches?
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