1. What is wrong (if anything) with each of the following statements?

1. “The ‘Intermediate Run’ in macroeconomic modeling refers to a period of no longer than one year”
2. “In the ‘Intermediate Run’, prices and wages are sticky, so that persistent periods of involuntary unemployment can exist”
3. “The real interest rate equals the nominal interest rate plus the rate of expected inflation”
4. “The Marginal Propensity to Consume (MPC) is measured as the change in income divided by the change in consumption—DY/DC.”
5. “The Marginal Propensity to Consume (MPC) minus the Marginal Propensity to Save (MPS) equals zero.”
6. “Money demand is negatively related to the price level”
7. “In the ‘Intermediate Run,’ an increase in the real interest rate leads to a reduction in Investment and an increase in Consumption.”
8. “Because of the Classical Dichotomy, the monetary conditions in the nominal side of the economy have a direct impact on conditions in the real side of the economy.”
9. “In the ‘Intermediate Run’, the aggregate supply curve is upward sloping.”
10. “In the ‘Intermediate Run’ model, an increase (a rightward shift) in the ‘IS’ curve will lead to an increase in output and an increase in the real interest rate.”
11. “In the ‘Intermediate Run’ model, an increase in the technology parameter (A_t) will lead to increased employment, an expansion of output, and an increase in the real interest rate.”
12. “In the ‘Intermediate Run’ model, an increase in government expenditures will lead to a permanent expansion in output.”
13. “Ricardian Equivalence suggests that households can infer an increase in federal government spending that is financed by borrowing will not lead to a future increase in their tax liabilities.

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1 The Intermediate Run in macroeconomic modeling refers to a period of no longer than one year The statement is incorrect The intermediate run in macroeconomic modeling typically refers to a period lo... View the full answer