Question 1

"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?

Accepted Answer

A) The traditional Keynesians 
B) The monetarists 
C) The traditional classicals 
D) The new Keynesians 
E) The new classicals

Question 2

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

Question 3

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.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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.

Question 6

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

Accepted Answer

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

Question 7

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.

Question 8

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

Accepted Answer

A) the long-run aggregate supply curve is horizontal. 
B) the long-run Phillips curve is vertical. 
C) the price level in the long run is fixed. 
D) the aggregate demand curve cannot shift. 
E) the long-run Phillips curve is upward-sloping.

Question 9

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

Accepted Answer

A) The new classical school 
B) The new Keynesian school 
C) The traditional Keynesian school 
D) The monetarist school 
E) The classical school

Question 10

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 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 13

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

Accepted Answer

A) new classical economic theory. 
B) monetarist economic theory. 
C) new Keynesian economic theory. 
D) classical economic theory. 
E) traditional Keynesian economic theory.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

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?

Accepted Answer

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

Question 17

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

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

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

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.