Chapter 13.1
________ perspective is the philosophy that, in the long run, the business cycle will fluctuate around the potential, or full-employment, level of output.
Neoclassical
______ inflation is a future rate of inflation that consumers and firms build into current decision making.
Expected
What model (neoclassical/Keynesian) makes more sense in short term scales?
Keynesian.
______ GDP is the level of output an economy can achieve when all resources are fully employed?
Potential
When the economy is producing at potential GDP, ______ unemployment will be zero.
Cyclical
What framework (neoclassical/Keynesian) makes more sense in short term scales?
Neoclassical
What is the Adaptive Expectation Theory?
A theory that people use past experiences to slowly adapt their beliefs and behavior as a change in circumstances.
What's the key policy question in the Neoclassical perspective?
How to promote the growth of potential GDP.
What is the Rational Expectation Theory?
A theory about people using all the information available to them to make up the most accurate expectations about the future.
What is the typical view of unemployment in the Neoclasscal perspective (how can it be reduced):
The view of unemployment tends to focus on how the government can adjust public policy to reduce the natural rate of unemployment.
What is the difference between Rational and Adaptive Expectation Theory's?
In the Adaptive theory people mostly use the past to make assumptions, in the Rational theory people use all resources available to them to make assumptions.
In Neoclassical persepctive Government policy should focus on promoting long-run productivity growth through (give one example):
-Investments in human capital, physical capital, and technology
-Operating together in a market-oriented environment that rewards innovation