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Chapter 13: Q.8 (page 332)
What is the difference between rational expectations and adaptive expectations?
The difference is whether people and firms can use all available information.
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A neoclassical economist and a Keynesian economist are studying the economy of Vineland. It appeal's that Vineland is beginning to experience a mild recession with a decrease in aggregate demand. Which of these two economists would likely advocate that the government of Vineland take active measures to reverse this decline in aggregate demand? Why?
If the economy is suffering through a rampant inflationary period, would a Keynesian economist advocate for stabilization policy that involves higher taxes and higher interest rates? Explain your answer.
Does neoclassical economics focus on the long term or the short term? Explain your answer.
Explain why the neoclassical economists believe that the government does not need to do much about unemployment. Do you agree or disagree? Explain.
Summarize the Keynesian and Neoclassical models.
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