Illustrate graphically what would happen to the price level and Real GDP level if individuals hold rational expectations, prices and wages are flexible, and individuals correctly anticipate a rise in...

Illustrate graphically what would happen to the price level and Real GDP level if individuals hold rational expectations, prices and wages are flexible, and individuals correctly anticipate a rise in aggregate demand. In each of the figures (a–d) that follow, the starting point is  1. Which part (a, b, c, or d) illustrates each of the following? a. Friedman natural rate theory (short run) b. New classical theory (unanticipated policy, short run) c. Real business cycle theory d. New classical theory (incorrectly anticipated policy, overestimating increase in aggregate demand, short run) e. Policy ineffectiveness proposition (PIP)











May 18, 2022
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