In the Friedman-Lucas money surprise model, a surprise increase in money supply growth
A) has no effect on inflation.
B) increases inflation less than in proportion to the growth rate of the money supply.
C) increases inflation in an equal proportion to the growth rate of the money supply.
D) increases inflation more than in proportion to the growth rate of the money supply.
Question 2
A difference between the classical and new classical models is that
a. classical economists assumed that labor suppliers knew the real wage, while the new classical economists assume they form a rational expectation of the real wage.
b. classical economists assumed that the money wage was flexible while the new classical economists assume it was fixed.
c. new classical models do not assume perfect competition.
d. labor supply in the classical model is a function of the real wage while labor supply depends on the money wage in the new classical model.
e. both a and c.
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