Question 1

New Keynesians argue that a decrease in government spending reduces inflation.

Accepted Answer

A) True 
 B)False

Question 2

Traditional Keynesian economics assumes that prices are relatively flexible in response to changes in aggregate expenditures.

Accepted Answer

A) True 
 B)False

Question 3

The new Keynesians believe that the economy is not always in equilibrium because:

Accepted Answer

A)  of the existence of voluntary unemployment. 
B)  the Federal Reserve policy is too restrictive. 
C)  government intervention destabilizes the economy. 
D)  of the existence of wage and price rigidities. 
E)  the rate of inflation is too high. 
A)  of the existence of voluntary unemployment. 
B)  the Federal Reserve policy is too restrictive. 
C)  government intervention destabilizes the economy. 
D)  of the existence of wage and price rigidities. 
E)  the rate of inflation is too high.

Question 4

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 5

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 represent the supply curve in the simple Keynesian model?

Accepted Answer

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

Question 6

An economist from which of the following schools of thought would most likely say - "An increase in government expenditure will only increase inflation, because the aggregate supply curve is vertical"?

Accepted Answer

A)  Neoclassical economics 
B)  Traditional classical economics 
C)  New Keynesian economics 
D)  Keynesian economics 
E)  Marxist economics 
A)  Neoclassical economics 
B)  Traditional classical economics 
C)  New Keynesian economics 
D)  Keynesian economics 
E)  Marxist economics

Question 7

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:

Accepted Answer

A)  point A. 
B)  point B. 
C)  point C. 
D)  point D. 
E)  point E. 
A)  point A. 
B)  point B. 
C)  point C. 
D)  point D. 
E)  point E.

Question 8

Who is the leading proponent of the monetarist theory?

Accepted Answer

A)  John Maynard Keynes 
B)  Paul Volcker 
C)  Adam Smith 
D)  Milton Friedman 
E)  Alan Greenspan 
A)  John Maynard Keynes 
B)  Paul Volcker 
C)  Adam Smith 
D)  Milton Friedman 
E)  Alan Greenspan

Question 9

According to the Keynesian school of thought, the economy is not self-regulating. That is, to achieve a satisfactory level of real GDP, the government often has to intervene by managing aggregate demand.

Accepted Answer

A) True 
 B)False

Question 10

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. Assume the economy is currently at point C. According to the new classical school, an expected increase in government spending:

Accepted Answer

A)  would move the economy to point A. 
B)  would move the economy to point B. 
C)  would move the economy to point D. 
D)  would move the economy above point A. 
E)  would move the economy below point C. 
A)  would move the economy to point A. 
B)  would move the economy to point B. 
C)  would move the economy to point D. 
D)  would move the economy above point A. 
E)  would move the economy below point C.

Question 11

The assumption of wage and price flexibility lead classical economists to conclude that business cycle fluctuations are short-term in nature.

Accepted Answer

A) True 
 B)False

Question 12

New classical economists believe that wages are inflexible.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A)  small changes in goods market prices and a flat aggregate supply curve. 
B)  large changes in goods market prices and a flat aggregate supply curve. 
C)  large changes in goods market prices and a steep aggregate supply curve. 
D)  small changes in goods market prices and a steep aggregate demand curve. 
E)  small changes in goods market prices and a horizontal aggregate demand curve. 
A)  small changes in goods market prices and a flat aggregate supply curve. 
B)  large changes in goods market prices and a flat aggregate supply curve. 
C)  large changes in goods market prices and a steep aggregate supply curve. 
D)  small changes in goods market prices and a steep aggregate demand curve. 
E)  small changes in goods market prices and a horizontal aggregate demand curve.

Question 14

Which of the following is true of the classical model?

Accepted Answer

A)  Changes in aggregate demand does not have any impact on the aggregate price level. 
B)  The aggregate supply curve is perfectly elastic. 
C)  An increase in aggregate demand increases the price level, output remaining unchanged. 
D)  Changes in aggregate demand determines the equilibrium output of the economy. 
E)  Real GDP and price level remain unchanged irrespective of changes in aggregate demand and supply. 
A)  Changes in aggregate demand does not have any impact on the aggregate price level. 
B)  The aggregate supply curve is perfectly elastic. 
C)  An increase in aggregate demand increases the price level, output remaining unchanged. 
D)  Changes in aggregate demand determines the equilibrium output of the economy. 
E)  Real GDP and price level remain unchanged irrespective of changes in aggregate demand and supply.

Question 15

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

Accepted Answer

A)  both inflation and unemployment does not exist. 
B)  high growth rate of money supply poses problems in the economy. 
C)  unemployment is usually experienced amidst high real GDP. 
D)  government intervention in the economy aggravates the problems of inflation and unemployment. 
E)  inflation is not a problem when unemployment is high. 
A)  both inflation and unemployment does not exist. 
B)  high growth rate of money supply poses problems in the economy. 
C)  unemployment is usually experienced amidst high real GDP. 
D)  government intervention in the economy aggravates the problems of inflation and unemployment. 
E)  inflation is not a problem when unemployment is high.

Question 16

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 17

New classical economics assumes that government has direct control over the equilibrium level of GDP and indirect control over the money supply.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following economic theories take into account the rational expectations of people in the economy?

Accepted Answer

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

Question 19

Traditional Keynesian economists believed that:

Accepted Answer

A)  the aggregate supply curve is a vertical line at a fixed level of prices. 
B)  an increase in aggregate demand would cause a change in the price level. 
C)  the government should take an active role in the economy to restore equilibrium. 
D)  changes in aggregate demand does not determine equilibrium real GDP. 
E)  the private sector is not an important source for shifts in aggregate demand. 
A)  the aggregate supply curve is a vertical line at a fixed level of prices. 
B)  an increase in aggregate demand would cause a change in the price level. 
C)  the government should take an active role in the economy to restore equilibrium. 
D)  changes in aggregate demand does not determine equilibrium real GDP. 
E)  the private sector is not an important source for shifts in aggregate demand.

Question 20

Milton Friedman in his book on consumption function, discussed the importance of _____, rather than _____, to understand consumer spending.

Accepted Answer

A)  savings; expenditure 
B)  permanent income; current income 
C)  money supply; real output 
D)  wages; savings 
E)  real output; prices 
A)  savings; expenditure 
B)  permanent income; current income 
C)  money supply; real output 
D)  wages; savings 
E)  real output; prices

New Keynesians argue that a decrease in government spending reduces inflation.

Traditional Keynesian economics assumes that prices are relatively flexible in response to changes in aggregate expenditures.

The new Keynesians believe that the economy is not always in equilibrium because:

The recognition lag refers to the:

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 represent the supply curve in the simple Keynesian model?

An economist from which of the following schools of thought would most likely say - "An increase in government expenditure will only increase inflation, because the aggregate supply curve is vertical"?

Who is the leading proponent of the monetarist theory?

According to the Keynesian school of thought, the economy is not self-regulating. That is, to achieve a satisfactory level of real GDP, the government often has to intervene by managing aggregate demand.

The assumption of wage and price flexibility lead classical economists to conclude that business cycle fluctuations are short-term in nature.

New classical economists believe that wages are inflexible.

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

Which of the following is true of the classical model?

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

According to the new classical school, an expected increase in government spending is associated with:

New classical economics assumes that government has direct control over the equilibrium level of GDP and indirect control over the money supply.

Which of the following economic theories take into account the rational expectations of people in the economy?

Traditional Keynesian economists believed that:

Milton Friedman in his book on consumption function, discussed the importance of _, rather than _, to understand consumer spending.

The Wealth of Nations: Ownership and Economic Freedom

Scarcity and Opportunity Costs

The Market and Price System

The Aggregate Economy

National Income Accounting

An Introduction to the Foreign Exchapterange 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

Exchapterange Rates and Financial Links Between Countries

Filters

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

New Keynesians argue that a decrease in government spending reduces inflation.

Traditional Keynesian economics assumes that prices are relatively flexible in response to changes in aggregate expenditures.

The new Keynesians believe that the economy is not always in equilibrium because:

The recognition lag refers to the:

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 represent the supply curve in the simple Keynesian model?

An economist from which of the following schools of thought would most likely say - "An increase in government expenditure will only increase inflation, because the aggregate supply curve is vertical"?

Who is the leading proponent of the monetarist theory?

According to the Keynesian school of thought, the economy is not self-regulating. That is, to achieve a satisfactory level of real GDP, the government often has to intervene by managing aggregate demand.

The assumption of wage and price flexibility lead classical economists to conclude that business cycle fluctuations are short-term in nature.

New classical economists believe that wages are inflexible.

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

Which of the following is true of the classical model?

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

According to the new classical school, an expected increase in government spending is associated with:

New classical economics assumes that government has direct control over the equilibrium level of GDP and indirect control over the money supply.

Which of the following economic theories take into account the rational expectations of people in the economy?

Traditional Keynesian economists believed that:

Milton Friedman in his book on consumption function, discussed the importance of _____, rather than _____, to understand consumer spending.

The Wealth of Nations: Ownership and Economic Freedom

Scarcity and Opportunity Costs

The Market and Price System

The Aggregate Economy

National Income Accounting

An Introduction to the Foreign Exchapterange 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

Exchapterange Rates and Financial Links Between Countries

Filters

Milton Friedman in his book on consumption function, discussed the importance of _, rather than _, to understand consumer spending.