Describe and explain the policy irrelevance proposition
What will be an ideal response?
The policy irrelevance proposition is the conclusion that policy actions have no real effects in the short run if the policy actions were anticipated and none in the long run even if the policy actions were unanticipated. The conclusion comes from rational expectations hypothesis. Prices and wages are assumed to be flexible and people form their expectations on a rational basis.
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Which of the following describes the relationship between net exports and imports?
a. Net exports = imports + exports b. Net exports = exports - imports c. Net exports = imports - exports d. Imports = net exports - exports e. Imports are not related to net exports
An increase in the price of bread produced domestically will be reflected in
a. both the GDP deflator and the consumer price index. b. neither the GDP deflator nor the consumer price index. c. the GDP deflator but not in the consumer price index. d. the consumer price index but not in the GDP deflator.