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

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 -Refer to the Figure 15.2. If the actual inflation rate is 15 percent and the expected inflation rate was 10 percent, the economy must currently be at:

The new classical school holds that:

The flat region of the aggregate supply curve reflects the Keynesian belief that:

Reaction lag is the term used to express the fact that some time passes before changes in the money supply are properly translated into changes in real GDP.

Which of the following schools of thought emphasize the role of money supply in determining equilibrium real GDP and price level?

An economist from which school of thought would most likely accept the following- "The wide acceptance and practice of activist government fiscal policy."

Traditional Keynesians argued that when wages are rigid, changes in output result in:

According to the new Keynesian school of thought, fiscal policy is a completely ineffective tool in combating supply-side shocks.

Monetarists believe that discretionary monetary policy, and not discretionary fiscal policy, should be used to correct disequilibrium.

Which of the following promoted legislation that would give private citizens greater information regarding public policymaking?

Agreeing with Keynesian economists, monetarists believe that the economy is subject to disequilibrium that must be corrected by government action.

Which of the following is true of the classical model?

"The dramatic reduction of the money supply during the 1930s was responsible for the Great Depression. The macroeconomy is intrinsically stable if left alone by the prying hand of government. The Federal Reserve Board, instead of tightening money during booms and loosening money during recessions (policies that are ineffective due to time lags), should simply increase the supply of money at a steady rate of 3 to 5 percent per year." This statement reflects which school of thought?

Both new classical economists and monetarists disagree with Keynesians about the optimal degree of involvement of the government in determining the equilibrium level of real GDP.

Which of the following statements accurately expresses the assumptions on which new Keynesian and new classical theory are based?

The monetarist assumption that monetary policy cannot change long-run equilibrium income is based on the idea that:

Which of the following schools of thought criticized the Fed's policy of targeting interest rates?

In the Keynesian region of the aggregate supply curve:

In case of classical model, increase in aggregate expenditure would:

Which of the following macroeconomic schools of thought had dominated the economics profession from the 1940s through the 1960s?