Which of the following is an implication of rational expectations theory?
A) Deviations of output from the natural rate are likely to be serious and long-lived.
B) The economy is like a complex machine, that needs to be optimally controlled with the proper policy.
C) Macroeconometric models based on past behavior will not be very useful in formulating policy.
D) Wages and prices are set almost entirely at random, so it is pointless to try to model their behavior.
E) Business cycles almost always result from a shift in aggregate demand.
C
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Suppose Cournot duopolist firms operate with each having a cost of 30qi (i = 1,2 ) so that each firm's marginal cost is 30. The inverse market demand curve is P = 120 - Q where Q = q1 + q2
Suppose there were no barriers to entry and firms continued to enter so long as there were positive economic profits. At the Nash-Cournot equilibrium, the price, P, is A) 30. B) 45. C) 60. D) 90.
Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time. Other things the same a higher money supply growth would be associated with
a. both higher inflation and higher nominal interest rates. b. a higher inflation rate, but not higher nominal interest rates. c. a higher nominal interest rate, but not higher inflation. d. neither a higher inflation rate nor a higher nominal interest rate.