C Describe Theories of the Business Cycle

Question 1

Neoclassical

Answer 1

Agg.S and Agg.D shifts are caused by changes in tech

Business cycles are temporary deviations from long-run equilibrium

Question 2

Keynesian

Answer 2

Agg.D shifts are due to changes in expectations (swings in optimism;overinvestment;overproduction of business owners)

Move Y back through monetary and fiscal policy

Question 3

New Keynesian

Answer 3

Keynes:Wages are sticky
New Keynes: prices of productive inputs too, are sticky

Sticky: inability to decrease money wages in order to +SRAS

Question 4

Austrian

Answer 4

Business cycles are caused by gov intervention

Ex: Gov pushes int. down, over production takes place. Investments turn out poorly as as result, contraction takes place.

Question 5

New Classical (RBC)

Answer 5

Changes in tech and external shock cause business fluctuations

Policy makers should fuck off, because expansion and contraction are efficient market responses to real external shocks