1. Using the theory of rational expectations explain how the economy can experience an expansion. Assume the expected inflation rate is 4%.Show how the results of part (a) in the goods market relate to the Philips curve.Please show how RGDP, expected price level, price level, EAD, AD’, SAS’, natural rate of unemployment and expected inflation change using two graphs.3. What is the difference between cost push and demand pull inflation?4. What do monetarists believe about changes in the money supply?5. What assumption is made about wages in the Keynesian way of thinking?7. During an expansion what happens to tax revenues?8. Whenever the Federal government spends less than it receives in tax revenue, then by definition it runs a budget ____________________.9. The sum of accumulated annual federal budget deficits in excess of budget surpluses refers to _____________________________. 10. An increase in the money supply shifts the AD curve _______________________ and an in increase in taxes shifts the AD curve __________________.11. What are the three goals for the economy?12. How do you find the spending multiplier given a graph with the AE curve?12 b. How do taxes and imports affect the spending multiplier?13. Which of the following could lead to demand-pull inflation?a) an increase in oil pricesb) an increase in the quantity of moneyc) an increase in the money wage rated) a decrease in exports14. Cost push inflation can start with a) a decrease in investmentb) a decrease in quantity of moneyc) an increase in gov expendituresd) an increase in oil prices15. What does the Philips curve show and what is held constant along the short run Philips curve?16. The widespread implementation of computers in American workplaces during the 1990s, along with the corresponding gains in labor productivity most likely caused:a) the increase in fiscal policy measures b) the decrease in rational expectationsc) the rise in US inflationd) the high growth in real GDP and potential GDP17. During the Great Depression, the unemployment ratea) remained low as wages fellb) climbed to 25 percentc) remained stable but assest prices felld) climbed to 10 percent18. Which of the following is NOT a government item?a) purchases of goods and servicesb) debt interest on the governments debtc) purchase of foreign bondsd) transfer payments19. The idea that a government budget deficit decreases investment is called ____________________________.20. The structural deficit is the deficita) that would occur at full employmentb) during a recessionc) during a recoveryd) caused by the business cycle21. What does the laffer curve show?22. Fiscal policy attempts to achieve all of the following objectives except ______________.a) price level stability b) full employmentc) a stable money supplyd) sustained economic growth23. A country has been in existence for only two years. In the first year, tax revenues were $1 million and expenditures were $1.5 million. In the second year, tax revenues were $1.5 M and expenditures were $2 million. At the end of the second year what was this country’s national debt?24. The theory of rational expectations supports the idea of greater flexibility in prices making the amount of time difference between the short and long run smaller. In one sentence, give me the key difference that closes the gap. (hint: think of SAS adjustment)25. What does the consumption function show?26. If consumption increase from $2000 to $4000 when disposable income rises from $3000 to $6000, what is the marginal propensity to consume?27. What curve relates the level of planned expenditure to the level of real GDP?28. In monetarist business cycle theory, increases in money growth temporarily ____________ real GDP because interest rates
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