Advanced macro Economics - oct 2025

New Keynesian macroeconomics assumes that economic agents have

• a) adaptive expectations

• b) Native expectations

• c) Rational expectations

• Static expectation

The theory that firms pay workers a wage higher than the market-clearing wage to increase productivity is known as:

• A. Coordination failure

• B. Adverse selection.

• C. Efficiency wages.

• D. Insider-outsider model.

1. _______ policy is generally considered the primary tool for short-run stabilization in New Keynesian models.

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New Keynesian economists believe that competitive markets clear instantaneously. Say true or false

1. In the long run, New Keynesian models accept the neutrality of money. Say true or false

According to the Mundell-Fleming model, with perfect capital mobility and a flexible exchange rate, expansionary fiscal policy results in:

• A. An increase in output.

• B. A decrease in the domestic interest rate.

• C. An appreciation of the exchange rate and no change in output.

• D. A depreciation of the exchange rate and an increase in net exports.

Under a fixed exchange rate regime, the central bank must sacrifice its ability to conduct independent:

• a. Fiscal Policy

• b. Trade policy

• c. Monetary policy

• d. Competition Policy

5. A depreciation of a country's nominal exchange rate (assuming all else is constant) generally causes:

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• a. Imports to become cheaper for domestic consumers

• b. Exports to become cheaper for foreign buyers

• c. A deterioration of the current account balance

• d. The domestic money supply to contract

1. The _________ measures the relative price of domestic goods in terms of foreign goods.

1. The Balance of Payments (BoP) must, by accounting convention, always sum to zero. Say true or false.