ECONOMICS
BUSINESS CYCLES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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whether people form their expectations rationally.
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whether changes in unemployment are voluntary or involuntary.
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whether individuals engage in optimizing behavior at all times.
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whether changes in the money supply affect output in the long-run.
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Detailed explanation-1: -Keynesian theory explains the reduction in welfare by a failure in economic coordination: because wages and prices do not adjust instantaneously to equate supply and demand in all markets, some gains from trade go unrealized in a recession. In contrast, real business cycle theory allows no unrealized gains from trade.
Detailed explanation-2: -Real business cycle theory is the latest incarnation of the classical view of economic fluctuations. It assumes that there are large random fluctuations in the rate of technological change. In response to these fluctuations, individuals rationally alter their levels of labor supply and consumption.
Detailed explanation-3: -Keynes argued that inadequate overall demand could lead to prolonged periods of high unemployment. An economy’s output of goods and services is the sum of four components: consumption, investment, government purchases, and net exports (the difference between what a country sells to and buys from foreign countries).
Detailed explanation-4: -Efficiency Wages New Keynesian Economics argues that unemployment is caused by the efficiency in wages.