Answer to Question #298637 in Macroeconomics for Workye

Question

Indicate whether you agree and disagree with the following statements. Note that you need to write the justification that support your response.

1.The economy in New Keynesian School can be characterized by market imperfections and sticky prices and wages. However, money is assumed affecting real sector.

2.Money supply is endogenous and exogenous in the case of flexible and fixed exchange rate regimes, respectively

3.The 1970s price shock brought attention of rational expectation into macroeconomics

Answer 1

1.The economy in New Keynesian School can be characterized by market imperfections and sticky prices and wages. However, money is assumed affecting real sector. -true : the New Keynesian model assumes monetary policy has a strong influence on economic activity. Monetary policy affects production and employment in the short run because prices respond sluggishly to changes in money supply

2.Money supply is endogenous and exogenous in the case of flexible and fixed exchange rate regimes, respectively - true: money supply in an economy is endogenous where it is determined through interactions of other economic variables, thus flexible. Exogenous money supply is autonomously determined by an external authority such as central bank, and is thus fixed.

3.The 1970s price shock brought attention of rational expectation into macroeconomics - true: during the 1970s, the rational expectations model made previous macroeconomic theory largely obsolete