Macroeconomics Master - Research Paper Example

From the diagram the output level following a shift in AS curve will decline from Y1 to Y2, price levels will increase from P1 to P2. Therefore the statement is false. Monopolistic competition form of market has a number of characteristics that make it different from other forms of markets, in this market there are many buyers and sellers and the sellers have a degree of controlling prices, consumers have the perception that there are no price differences and that there are only a few barriers to entry and exit.

Rational expectations refers to the situation whereby individuals in an economy have all the available information including the past history of an economy, therefore the expected inflation level when people have rational expectation is much higher. In ur case we expect money supply to increase, when there is an increase in money supply we also expect that inflation will rise, for this reason given that we have rational expectations individuals have all the information and we expect inflation to be much higher.

For this reason therefore this will affect the level of output by the firms. The output will be affected due to the changes that consumers expect in the market when the level of money supply changes and also the firms will adjust their production level due to the cost incurred due to changes in the level of money supply. The . form of market has a number of characteristics that make it different from other forms of markets, in this market there are many buyers and sellers and the sellers have a degree of controlling prices, consumers have the perception that there are no price differences and that there are only a few barriers to entry and exit.

When we have monopolistic competitive firms in an economy that face menu costs, menu cost refers to the costs that a firm faces when prices changes in the economy. Rational expectations refers to the situation whereby individuals in an economy have all the available information including the past history of an economy, therefore the expected inflation level when people have rational expectation is much higher. In ur case we expect money supply to increase, when there is an increase in money supply we also expect that inflation will rise, for this reason given that we have rational expectations individuals have all the information and we expect inflation to be much higher.

For this reason therefore this will affect the level of output by the firms.The output will be affected due to the changes that consumers expect in the market when the level of money supply changes and also the firms will adjust their production level due to the cost incurred due to changes in the level of money supply.c. TRUEThe rational expectation Phillips curve implies that the individuals in the economy have al the information regarding all those factors that affect inflation levels in the economy, in this form of expectations the cost of a lower rate of unemployment is a higher rate of inflation, under rational expectations the trade off between unemployment and inflation is much worse than fixed and adaptive expectations.

For example if we start with an expected inflation