Problem
1. Why does ‘the combination of the rational expectations hypothesis and the assumption of continuous market clearing' imply that output and employment fluctuate randomly around their natural levels?
2. How useful do you think equilibrium models are in analysing a world that is never in equilibrium?
3. The Chambers Twentieth Century Dictionary defined ‘hysteresis' as: the retardation or lagging of an effect behind the cause of the effect: the influence of earlier treatment of a body on its subsequent reaction. How then can hysteresis occur in labour markets? How can the existence of hysteresis in labour markets be used to argue against the neutrality of money?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.