Exam 25: Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

"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?

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?

Which of the following is true of the classical model?

Milton Friedman is widely considered to be the father of monetarism.

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

Which of the following schools of thought stressed on a fixed-price model for macroeconomic equilibrium?

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

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

Which school calls for more information from policymakers so that people can incorporate government plans into their outlook for the future?

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

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

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

The economic theory that suggested an alternative to the rising unemployment and inflation that the static Phillips curve analysis could not explain was the:

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

According to the new classical school, if macroeconomic policy is perfectly expected, then the aggregate supply curve and the Phillips curve must be vertical in both the short run and the long run.

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 in the simple Keynesian model?

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

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

New classical economists contend that both the short-run and long-run aggregate supply curves are vertical.

Monetarists argue that government actions, particularly monetary policy, worsens the negative aspects of the business cycle.