Question 1

Which of the following would explain wage rigidities?

Accepted Answer

A) Inflexible long-term contracts 
B) Inflation 
C) The liquidity of financial assets 
D) The reluctance of firms to lay off workers 
E) High worker productivity 
A) Inflexible long-term contracts 
B) Inflation 
C) The liquidity of financial assets 
D) The reluctance of firms to lay off workers 
E) High worker productivity

Question 2

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 3

The new Keynesian economists believed that:

Accepted Answer

A) wages and prices are flexible in the short run. 
B) wages and real GDP are not flexible in the long run. 
C) wages and real GDP are flexible in the short run. 
D) wages and prices are not flexible in the short run. 
E) wages and prices are not flexible in the long run. 
A) wages and prices are flexible in the short run. 
B) wages and real GDP are not flexible in the long run. 
C) wages and real GDP are flexible in the short run. 
D) wages and prices are not flexible in the short run. 
E) wages and prices are not flexible in the long run.

Question 4

"The market is not a self-regulating mechanism because prices are not flexible and nothing ensures that planned leakages will be offset by planned injections.To bring the economy out of depression and end high unemployment, some way of stimulating aggregate demand is required.This can be best achieved by a combination of government deficit spending and regulation of tax rates." Which school of thought does this statement best represent?

Accepted Answer

A) Rationalist economics 
B) Monetarist economics 
C) Classical economics 
D) Keynesian economics 
E) Marxist economics 
A) Rationalist economics 
B) Monetarist economics 
C) Classical economics 
D) Keynesian economics 
E) Marxist economics

Question 5

Which of the following is true from the New Keynesian perspective?

Accepted Answer

A) Fluctuations in private spending does not affect aggregate demand in an economy. 
B) Investment spending remains relatively constant irrespective of the supply shocks. 
C) Fluctuations in aggregate demand are not the primary source of problems for policymakers. 
D) The government should limit its role to administrative functions. 
E) Monetary and fiscal policies often fail to restore macroeconomic equilibrium. 
A) Fluctuations in private spending does not affect aggregate demand in an economy. 
B) Investment spending remains relatively constant irrespective of the supply shocks. 
C) Fluctuations in aggregate demand are not the primary source of problems for policymakers. 
D) The government should limit its role to administrative functions. 
E) Monetary and fiscal policies often fail to restore macroeconomic equilibrium.

Question 6

In the early 1960s, monetary theory rather than Keynesian theory dominated economics.

Accepted Answer

A) True 
 B)False

Question 7

According to new classical economics, fiscal policy can change equilibrium real GDP only if it changes the price level or one of the determinants of aggregate supply, and people expect this change.

Accepted Answer

A) True 
 B)False

Question 8

The school of thought that assumes that real GDP is determined by aggregate supply, whereas the equilibrium price level is determined by aggregate demand is known as _____.

Accepted Answer

A) neoclassical economics 
B) classical economics 
C) new Keynesian economics 
D) Keynesian economics 
E) Marxist economics 
A) neoclassical economics 
B) classical economics 
C) new Keynesian economics 
D) Keynesian economics 
E) Marxist economics

Question 9

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 supply 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 supply curve. 
E) small changes in goods market prices and a horizontal aggregate demand curve.

Question 10

The Federal Reserve System is an independent body so, it does not require to report to Congress on its goals and money targets.

Accepted Answer

A) True 
 B)False

Question 11

What is the main difference between new Keynesian economics and monetarists?

Accepted Answer

A) Monetarists support a fixed-price model, whereas new Keynesians believe that prices fluctuate. 
B) Monetarists reject the idea that government intervention can stabilize the economy, whereas new Keynesians support this notion. 
C) Monetarists believe that the aggregate supply curve is always vertical, whereas new Keynesians believe that the aggregate supply curve is always horizontal. 
D) Monetarists believe that an increase in the money supply changes real GDP instantaneously, whereas new Keynesians assume that economic policy operates with a long and variable lag. 
E) Monetarists believe that deficit spending helps stimulate economic growth, whereas new Keynesians advocate a balanced budget. 
A) Monetarists support a fixed-price model, whereas new Keynesians believe that prices fluctuate. 
B) Monetarists reject the idea that government intervention can stabilize the economy, whereas new Keynesians support this notion. 
C) Monetarists believe that the aggregate supply curve is always vertical, whereas new Keynesians believe that the aggregate supply curve is always horizontal. 
D) Monetarists believe that an increase in the money supply changes real GDP instantaneously, whereas new Keynesians assume that economic policy operates with a long and variable lag. 
E) Monetarists believe that deficit spending helps stimulate economic growth, whereas new Keynesians advocate a balanced budget.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Assume that workers have perfect information about changes in inflation.Which of the following statements is true in this context?

Accepted Answer

A) Wage rates will not adjust immediately to the price level on account of the fixed contracts. 
B) The aggregate supply curve of the economy will become perfectly elastic. 
C) The aggregate supply curve will shift to the right. 
D) Nominal wage rates will always exceed the real wage rate. 
E) The economy will continue to produce at the potential level of real GDP. 
A) Wage rates will not adjust immediately to the price level on account of the fixed contracts. 
B) The aggregate supply curve of the economy will become perfectly elastic. 
C) The aggregate supply curve will shift to the right. 
D) Nominal wage rates will always exceed the real wage rate. 
E) The economy will continue to produce at the potential level of real GDP.

Question 14

_____ believe that a government that takes an active role in the economy may do more harm than good because economic policy operates with a long and variable lag.

Accepted Answer

A) Traditional Keynesians 
B) Keynesians 
C) Monetarists 
D) Classical economists 
E) New classical economists 
A) Traditional Keynesians 
B) Keynesians 
C) Monetarists 
D) Classical economists 
E) New classical economists

Question 15

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

Question 16

Traditional classical economists believe that:

Accepted Answer

A) wage rates are perfectly flexible. 
B) people do not have perfect information about the economy. 
C) prices are fixed for long periods of time. 
D) the price of resources, technology, and expectations cannot influence the equilibrium level of real GDP. 
E) changes in aggregate demand change only the real GDP. 
A) wage rates are perfectly flexible. 
B) people do not have perfect information about the economy. 
C) prices are fixed for long periods of time. 
D) the price of resources, technology, and expectations cannot influence the equilibrium level of real GDP. 
E) changes in aggregate demand change only the real GDP.

Question 17

New classical economists believe that wages are inflexible.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

New classical economists believe that:

Accepted Answer

A) market failure on a large scale is possible. 
B) disequilibrium in commodity markets demand government intervention. 
C) people are completely aware and informed about everything that is happening. 
D) wages are fixed in the short run. 
E) people purposefully substitute non-labor activities for work during recession. 
A) market failure on a large scale is possible. 
B) disequilibrium in commodity markets demand government intervention. 
C) people are completely aware and informed about everything that is happening. 
D) wages are fixed in the short run. 
E) people purposefully substitute non-labor activities for work during recession.

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

Which of the following would explain wage rigidities?

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 new Keynesian economists believed that:

Which of the following is true from the New Keynesian perspective?

In the early 1960s, monetary theory rather than Keynesian theory dominated economics.

According to new classical economics, fiscal policy can change equilibrium real GDP only if it changes the price level or one of the determinants of aggregate supply, and people expect this change.

The school of thought that assumes that real GDP is determined by aggregate supply, whereas the equilibrium price level is determined by aggregate demand is known as _____.

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

The Federal Reserve System is an independent body so, it does not require to report to Congress on its goals and money targets.

What is the main difference between new Keynesian economics and monetarists?

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

Assume that workers have perfect information about changes in inflation.Which of the following statements is true in this context?

_____ believe that a government that takes an active role in the economy may do more harm than good because economic policy operates with a long and variable lag.

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

Traditional classical economists believe that:

New classical economists believe that wages are inflexible.

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

New classical economists believe that:

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

Elasticity: Demand and Supply

National Income Accounting

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

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

Monetary Policy

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

Resource Markets

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange 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.