2. Explain the new classical proposition of “policy ineffectivenessâ?.(The new classical policy ine

2. Explain the new classical proposition of “policy ineffectivenessâ€.(The new classical policy ineffectiveness proposition states that systematic monetary and fiscal policy actions that change aggregate demand do not have any effect on output and employment, even in the short run.)3. The Federal Reserve has increasingly become more open in their sharing of information about monetary policy. According to new classical theory, what impact should this openness have on their ability to stabilize output? Explain.(If the public has better information, it will be harder for the Federal Reserve to conduct unanticipated monetary policy. As a result, monetary policy should have fewer real effects on the economy and stabilization is less likely to be effective.)4. Explain the new classical theory explanation of the Great Depression. What is the Keynesian critique of this explanation?(New Classical economists such as Robert Lucas argue that the Great Depression was the result of misperceptions that created a fall in aggregate demand, primarily because of an unexpected fall in the money supply. Keynesians argue that it is ridiculous to argue that misunderstandings created a depression of the size and length of the Great Depression.)6. If policy irrelevance holds in the new classical model, does that mean that monetary and fiscal policy can never impact output? Under what conditions could it impact output? Explain.(New classical theory argued that anticipated changes in monetary and fiscal policy are irrelevant, but unanticipated changes in monetary and fiscal policy can affect output. Thus, any policy that is unpredictable will have real effects)8. What would be the explanation of the Great Depression offered by proponents of real business cycle models? Do you see any potential problems with their explanations?(Real Business Cycle models would explain the Great Depression as caused by a large, negative, and persistent productivity shock. One problem with this analysis is that it is very difficult to identify exactly what this shock could be. Another problem is that the Great Depression was characterized by excess supply, not a fall in supply, as evidenced by the falling price level throughout the Great Depression.) Can you guys possibly add a little more?9. Numerous studies of the labor market (and your own experience) suggest that the labor market is becoming increasingly specialized, meaning that each job increasingly requires a unique set of education and job training skills. Analyze this development within the context of a model of efficiency wages. What impact do you think this has on unemployment? Wage flexibility? How do you think that firms respond to these developments? Provide graphs of the labor market to illustrate(These developments are likely to increase the costs of labor turnover and increase the benefits of hiring people with special skills. In an efficiency wage model, this should increase efficiency wages and increase equilibrium unemployment. ) Can you guys add a little more?11. Explain the ways in which the real business cycle model is an extension of the Classical model. In what ways are they different?(The real business cycle theory is a modern version of the classical economics. The business cycle is an equilibrium phenomenon. It is the result of the actions of optimizing agents in the face of changes in the economic environment (i.e., productivity shocks) or changes inpreferences. Macroeconomic stabilization policies are counter- productive. The real business cycle theorists, therefore, reach noninterventionist policy conclusions, as did the original classical economists. The primary difference is that the real business cycle model is that the assumptions of the real business cycle theory are much more explicitly laid out. For example, in these models production functions are explicitly defined. In addition, real business cycle theories focus much more on explaining and measuring the sources of productivity shocks.) Can you guys come up with a little more?