Question 1

The new classical school of thought is usually associated with the theory of rational expectations.

Accepted Answer

A) True 
 B)False  True

Question 2

According to the traditional classical school of thought, aggregate supply is vertical both in the short run and in the long run.

Accepted Answer

A) True 
 B)False  True

Question 3

Traditional Keynesians would argue that fluctuations in aggregate demand are closely tied to fluctuations in investment.

Accepted Answer

A) True 
 B)False  True

Question 4

The effect lag occurs because it takes policymakers sometime to recognize that a problem exists in an economy.

Accepted Answer

A) True 
 B)False

Question 5

According to monetarists, changes in the money supply have long-lasting effects on the equilibrium level of real GDP.

Accepted Answer

A) True 
 B)False

Question 6

According to new classical school of economics, the aggregate supply curve is:

Accepted Answer

A)  horizontal in both the short run and the long run. 
B)  vertical in the short run and upward-sloping in the long run. 
C)  upward-sloping in both the short run and the long run. 
D)  vertical in both the short run and the long run. 
E)  upward-sloping in the short run and vertical in the long run. 
A)  horizontal in both the short run and the long run. 
B)  vertical in the short run and upward-sloping in the long run. 
C)  upward-sloping in both the short run and the long run. 
D)  vertical in both the short run and the long run. 
E)  upward-sloping in the short run and vertical in the long run.

Question 7

According to the monetarists, inflation is primarily caused by an increase in the money supply.

Accepted Answer

A) True 
 B)False

Question 8

The figure given below shows the supply curves with different slopes.
Figure 15.1
  
-Refer to Figure 15.1. Which of the following supply curves represents the supply curve described by the modern Keynesians?

Accepted Answer

A)  S2 
B)  S5 
C)  S3 
D)  S1 
E)  S4 
A)  S2 
B)  S5 
C)  S3 
D)  S1 
E)  S4

Question 9

Which of the following economic theories became popular in the 1930s in response to the shortcomings of existing theories of the Great Depression?

Accepted Answer

A)  New classical theory 
B)  Classical theory 
C)  Traditional Keynesian theory 
D)  Monetarist theory 
E)  New Keynesian theory 
A)  New classical theory 
B)  Classical theory 
C)  Traditional Keynesian theory 
D)  Monetarist theory 
E)  New Keynesian theory

Question 10

According to the traditional Keynesian school of thought, expansionary fiscal and monetary policy will:

Accepted Answer

A)  increase interest rates, thereby shifting the investment function to the right. 
B)  reduce both consumption and investment spending, thereby eliminating all inflationary pressures. 
C)  reduce investment spending, thereby stabilizing the aggregate supply shocks. 
D)  stimulate both consumption and investment spending, thereby increasing aggregate demand. 
E)  shift the aggregate demand curve to the left, thereby reducing the unemployment rate. 
A)  increase interest rates, thereby shifting the investment function to the right. 
B)  reduce both consumption and investment spending, thereby eliminating all inflationary pressures. 
C)  reduce investment spending, thereby stabilizing the aggregate supply shocks. 
D)  stimulate both consumption and investment spending, thereby increasing aggregate demand. 
E)  shift the aggregate demand curve to the left, thereby reducing the unemployment rate.

Question 11

Which of the following schools of thought reject the simple fixed-price model in favor of a model in which the aggregate supply curve is relatively flat at low levels of real GDP and slopes upward as real GDP approaches its potential level?

Accepted Answer

A)  The new Keynesian economists 
B)  The monetarists 
C)  The traditional classical economists 
D)  The new classical economists 
E)  The Marxists 
A)  The new Keynesian economists 
B)  The monetarists 
C)  The traditional classical economists 
D)  The new classical economists 
E)  The Marxists

Question 12

According to the monetarists, government intervention can stabilize the economy and minimize the effect of business cycles.

Accepted Answer

A) True 
 B)False

Question 13

According to the new Keynesians:

Accepted Answer

A)  prices adjust to equate demand and supply in every market simultaneously. 
B)  random variations in the money supply are the original source of economic fluctuations. 
C)  unemployment is voluntary. 
D)  aggregate supply shocks can be a prime source of economic instability. 
E)  government policy cannot stabilize the economy. 
A)  prices adjust to equate demand and supply in every market simultaneously. 
B)  random variations in the money supply are the original source of economic fluctuations. 
C)  unemployment is voluntary. 
D)  aggregate supply shocks can be a prime source of economic instability. 
E)  government policy cannot stabilize the economy.

Question 14

Which of the following thoughts do the Keynesian and the new Keynesian economists share?

Accepted Answer

A)  The belief that wages and prices are not flexible in the short run 
B)  The belief that the aggregate supply curve is always a horizontal line 
C)  The belief that the government's role in the economy should be minimized 
D)  The belief that the natural rate of unemployment in an economy is always zero 
E)  The belief that only unexpected changes can affect real GDP 
A)  The belief that wages and prices are not flexible in the short run 
B)  The belief that the aggregate supply curve is always a horizontal line 
C)  The belief that the government's role in the economy should be minimized 
D)  The belief that the natural rate of unemployment in an economy is always zero 
E)  The belief that only unexpected changes can affect real GDP

Question 15

Which of the following school of thought believes that the major source of the macroeconomic problems are the disequilibria in the private labor and goods market?

Accepted Answer

A)  Keynesians and new Keynesians 
B)  Only monetarists 
C)  Only new classical economists 
D)  Monetarists and new classical economists 
E)  Monetarists and Keynesians 
A)  Keynesians and new Keynesians 
B)  Only monetarists 
C)  Only new classical economists 
D)  Monetarists and new classical economists 
E)  Monetarists and Keynesians

Question 16

The recognition lag refers to the:

Accepted Answer

A)  time taken for changes in the money supply to be translated into changes in real
GDP) 
B)  time taken by policymakers to formulate an appropriate policy to solve an
Economic problem. 
C)  time taken by policies to have an impact on the different macroeconomic variables. 
D)  time taken by policymakers to recognize that an economic problem exists. 
E)  natural difference between monetary policy timing and fiscal policy timing. 
A)  time taken for changes in the money supply to be translated into changes in real
GDP) 
B)  time taken by policymakers to formulate an appropriate policy to solve an
Economic problem. 
C)  time taken by policies to have an impact on the different macroeconomic variables. 
D)  time taken by policymakers to recognize that an economic problem exists. 
E)  natural difference between monetary policy timing and fiscal policy timing.

Question 17

The figure given below represents the new classical long run and short run Phillips curve measuring inflation rate on vertical axis and unemployment rate on horizontal axis.
Figure 15.2
  
-According to the new classical school, an expected increase in government spending is associated with:

Accepted Answer

A)  a downward movement along the long-run Phillips curve. 
B)  an upward movement along the short-run Phillips curve. 
C)  a parallel outward shift of the long-run Phillips curve. 
D)  an upward movement along the long-run Phillips curve. 
E)  a downward shift of the short-run Phillips curve. 
A)  a downward movement along the long-run Phillips curve. 
B)  an upward movement along the short-run Phillips curve. 
C)  a parallel outward shift of the long-run Phillips curve. 
D)  an upward movement along the long-run Phillips curve. 
E)  a downward shift of the short-run Phillips curve.

Question 18

In the fixed-price Keynesian model, what would be the impact of an increase in aggregate expenditure on the aggregate demand curve and real GDP?

Accepted Answer

A)  The aggregate demand curve would shift rightward and real GDP would increase. 
B)  The aggregate demand curve would shift leftward and real GDP would decrease. 
C)  The aggregate demand curve would shift rightward and real GDP would decrease. 
D)  The aggregate demand curve would shift leftward and real GDP would increase. 
E)  The aggregate demand curve and real GDP would both remain constant. 
A)  The aggregate demand curve would shift rightward and real GDP would increase. 
B)  The aggregate demand curve would shift leftward and real GDP would decrease. 
C)  The aggregate demand curve would shift rightward and real GDP would decrease. 
D)  The aggregate demand curve would shift leftward and real GDP would increase. 
E)  The aggregate demand curve and real GDP would both remain constant.

Question 19

_____ have faith in the free market (price) system that leads them to favor minimal government intervention.

Accepted Answer

A)  New Keynesian economists 
B)  Traditional Keynesian economists 
C)  Monetarist economists 
D)  Traditional classical economists 
E)  New classical economists 
A)  New Keynesian economists 
B)  Traditional Keynesian economists 
C)  Monetarist economists 
D)  Traditional classical economists 
E)  New classical economists

Question 20

The primary difference between new Keynesian economics and traditional Keynesian economics is that the former is more realistic about international trade, whereas the latter stresses the importance of inward oriented strategies.

Accepted Answer

A) True 
 B)False

Exam 15: Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The new classical school of thought is usually associated with the theory of rational expectations.

According to the traditional classical school of thought, aggregate supply is vertical both in the short run and in the long run.

Traditional Keynesians would argue that fluctuations in aggregate demand are closely tied to fluctuations in investment.

The effect lag occurs because it takes policymakers sometime to recognize that a problem exists in an economy.

According to monetarists, changes in the money supply have long-lasting effects on the equilibrium level of real GDP.

According to new classical school of economics, the aggregate supply curve is:

According to the monetarists, inflation is primarily caused by an increase in the money supply.

The figure given below shows the supply curves with different slopes. Figure 15.1 -Refer to Figure 15.1. Which of the following supply curves represents the supply curve described by the modern Keynesians?

Which of the following economic theories became popular in the 1930s in response to the shortcomings of existing theories of the Great Depression?

According to the traditional Keynesian school of thought, expansionary fiscal and monetary policy will:

Which of the following schools of thought reject the simple fixed-price model in favor of a model in which the aggregate supply curve is relatively flat at low levels of real GDP and slopes upward as real GDP approaches its potential level?

According to the monetarists, government intervention can stabilize the economy and minimize the effect of business cycles.

According to the new Keynesians:

Which of the following thoughts do the Keynesian and the new Keynesian economists share?

Which of the following school of thought believes that the major source of the macroeconomic problems are the disequilibria in the private labor and goods market?

The recognition lag refers to the:

The figure given below represents the new classical long run and short run Phillips curve measuring inflation rate on vertical axis and unemployment rate on horizontal axis. Figure 15.2 -According to the new classical school, an expected increase in government spending is associated with:

In the fixed-price Keynesian model, what would be the impact of an increase in aggregate expenditure on the aggregate demand curve and real GDP?

_____ have faith in the free market (price) system that leads them to favor minimal government intervention.

The primary difference between new Keynesian economics and traditional Keynesian economics is that the former is more realistic about international trade, whereas the latter stresses the importance of inward oriented strategies.

Economics: the World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

National Income Accounting

An Introduction to the Foreign Exchange Market and the Balance of Payments

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Aggregate Expenditures

Income and Expenditures Equilibrium

Fiscal Policy

Money and Banking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Economic Growth

Development Economics

Globalization

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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