Analyze the following statement: "I know the fact that prices have started to rise rapidly seems like bad news,but at least prices starting to go up means that output must be starting to go up as well."
Suppose that many households look to the stock market to gauge how the economy is likely to perform in the future.When stock prices are rising,households will be optimistic about the future state of the economy and will increase their spending on houses and consumer durables,such as cars and furniture.When stock prices are falling,households will be pessimistic about the future and will cut back on their spending.If this view of the link between stock prices and household spending is correct,what will be the effect of a decline in stock prices on output in the new Keynesian view? Be sure to distinguish the short run from the long run.
Why are many economists skeptical of the Fed's ability to fine tune the economy? A) Monetary policy only affects output in the long run. B) Lags in policy make it difficult to properly time policy. C) Fiscal policy can be implemented more quickly than monetary policy. D) Monetary policy does not have any effect on output.
Stabilization policy refers to attempts to A) shift the AD curve to smooth short-run fluctuations in output. B) shift the SRAS curve to smooth short-run fluctuations in output. C) shift the AD curve to keep the price level as low as possible. D) shift the SRAS curve to keep the nominal interest rate as low as possible.