ECON 364
Homework Assignment Five – (24 pts.)

DUE TUESDAY, MARCH 22 at the beginning of class.  

ANSWERS MUST BE TYPED. 

PLEASE TURN IN THE HOMEWORK ON TIME - I WILL NOT ACCEPT HOMEWORK AFTER IT IS RETURNED TO THE CLASS AND HOMEWORK TURNED IN LATE WILL HAVE POINTS DEDUCTED.  Use your own words on the answers - DO NOT CUT AND PASTE FROM MY NOTES OR THE INTERNET.

1.  According to the New Keynesians, explain why aggregate demand externalities happen and why menu costs could hinder them happening. (6 pts.)

2.  According to the New Keynesians, explain three reasons employers might not cut wages even with an excess supply of labor. (6 pt.s)

3.  Explain why the rational expectations economists do not believe that government policy based upon "fooling" people will be effective unless it is entirely random. (6 pts.)

4.  What government policies do the rational expectations economists think are effective (even if not random) and why?  Give an example.  (6 pts.)