They assume that people take account of all information

They assume that, on average, people’s forecasts are correct

They imply that expected changes in demand have no effects on unemployment or the price level

They imply that unexpected changes in demand have long-lasting effects on both unemployment and the price level

Efficiency wages may hold wages below the equilibrium level.

Workers may resist wage cuts which reduce their wages below those paid to other workers in the same occupation

Prices may be sticky downwards in some markets because consumers prefer stable prices

Prices may be sticky downwards in some markets because consumers may judge quality by price

The central bank will make its interest rate decisions solely by considering whether actual inflation goes above or below the target

The central bank will decrease the interest rate if there is a demand shock which reduces aggregate demand

The central bank will increase the interest rate if there is a supply shock which permanently reduces aggregate supply

The central bank may not increase the interest rate if there is a supply shock which temporarily reduces aggregate supply

Trend GDP shows what the path of potential GDP would be if it grew steadily

A trough occurs at the end of a period of contraction

Trend GDP may be below potential GDP in some quarters and above in others

Trend GDP may be below potential GDP in some quarters and above in others

If actual output falls below the potential level of output

If actual output falls below the trend level of output

If actual output falls

If actual output falls for two consecutive quarters of a year