Question 1

New classical economists advocate less government intervention than the new Keynesian school of thought.

Accepted Answer

A) True 
 B)False

Question 2

What is the main difference between new Keynesian economists 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 horizontal, whereas new Keynesians believe that the aggregate supply curve is always vertical.
D)   Monetarists believe that an increase in the money supply changes real GDP instantaneously, whereas new Keynesians assume that economic policy operates withA long and variable lag.
E)   Monetarists believe that deficit spending helps stimulate economic growth, whereas new Keynesians advocate a balanced budget.F) A) and E)
G) A) and B)

Question 3

In the fixed-price Keynesian model, what would be the impact of an increase in aggregate expenditure on the aggregate demand curve and real GDP?

Accepted Answer

A)   The aggregate demand curve would shift rightward and real GDP would increase.
B)   The aggregate demand curve would shift leftward and real GDP would decrease.
C)   The aggregate demand curve would shift rightward and real GDP would decrease.
D)   The aggregate demand curve would shift leftward and real GDP would increase.
E)   The aggregate demand curve and real GDP would both remain constant.F) A) and E)
G) A) and D)

Question 4

Which of the following economic theories favors an active role for government in promoting low inflation and economic growth?

Accepted Answer

A)   New Keynesian
B)   Monetarists
C)   New classical economists
D)   Classical economists
E)   MarxistsF) D) and E)
G) A) and E)

Question 5

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 6

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.F) A) and D)
G) A) and E)

Question 7

The new classical school of thought is usually associated with the theory of rational expectations.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A)   New Keynesian economics assumes that the economy can reach equilibrium below the?natural rate of unemployment, whereas new classical economics assumes that?macroeconomic equilibrium is always at the natural rate of unemployment.
B)   New Keynesian economics maintains that government intervention is unnecessary,?whereas classical economics supports an active government role.
C)   New Keynesian economics assumes that the long-run Phillips curve is vertical,?whereas new classical economics views the long-run Phillips curve as horizontal.
D)   New Keynesian economics assumes that all prices are flexible, whereas new classical economics applies a fixed-price model.
E)   New Keynesian economics emphasizes short-run reductions in inflation rates, whereas new classical economics focuses on short-run reductions in the unemployment rate.F) All of the above
G) A) and B)

Question 11

In traditional Keynesian economics:

Accepted Answer

A)   the aggregate supply curve is vertical.
B)   the aggregate supply curve is horizontal.
C)   the aggregate supply curve is upward-sloping.
D)   the aggregate demand curve is horizontal.
E)   the aggregate demand curve is vertical.F) D) and E)
G) A) and D)

Question 12

Monetarists and new classical economists favor an active role of government in promoting low inflation and economic growth.

Accepted Answer

A) True 
 B)False

Question 13

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 economicsF) C) and D)
G) None of the above

Question 14

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.F) C) and D)
G) A) and B)

Question 15

"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 classicalsF) A) and B)
G) C) and E)

Question 16

Monetarists believe that changes in monetary policy would have:

Accepted Answer

A)   only short-term effect on the price level.
B)   only short-term effect on real GDP.
C)   only long-term effect on real GDP.
D)   no effect on price level and real GDP.
E)   both short-term and long term effect on real GDP.F) B) and E)
G) None of the above

Question 17

_____ school of thought would most likely be associated with the statement: "When wages are rigid, changes in output result in small changes in goods market prices and a relatively flat aggregate supply curve."

Accepted Answer

A)   The traditional Keynesian
B)   The modern Keynesian
C)   The Monetarist
D)   The classical
E)   The new classicalF) C) and D)
G) A) and C)

Question 18

New classical economists contend that an unexpected increase in the money supply will:

Accepted Answer

A)   increase the unemployment rate in the short run.
B)   reduce the unemployment rate in the short run.
C)   cause no short-run change in the unemployment rate.
D)   reduce the unemployment rate in the long run.
E)   increase the unemployment rate in the long run.F) A) and B)
G) A) and C)

Question 19

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

Accepted Answer

A)   shift the aggregate demand curve upward leading to an increase in real GDP and prices.
B)   shift the aggregate demand curve downward leading to an increase in real GDP and prices.
C)   shift the aggregate demand curve upward leading to a decrease in real GDP and prices.
D)   shift the aggregate demand curve downward leading to a decrease in real GDP and prices.
E)   shift the aggregate demand curve upward leading to an increase in prices and no change in real GDP.F) B) and C)
G) A) and C)

Question 20

Traditional Keynesians would argue that fluctuations in aggregate demand are closely tied to fluctuations in investment.

Accepted Answer

A) True 
 B)False

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

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 _____.

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Monetarists believe that changes in monetary policy would have:

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

New classical economists contend that an unexpected increase in the money supply will:

Correct Answer
verified

In the fixed-price Keynesian model, what would be the impact of an increase in aggregate expenditure on the aggregate demand curve and real GDP?

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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.

Correct Answer
verified

_____ school of thought would most likely be associated with the statement: "When wages are rigid, changes in output result in small changes in goods market prices and a relatively flat aggregate supply curve."

Correct Answer
verified

The new classical school of thought is usually associated with the theory of rational expectations.

Correct Answer
verified

Monetarists and new classical economists favor an active role of government in promoting low inflation and economic growth.

Correct Answer
verified

New classical economists advocate less government intervention than the new Keynesian school of thought.

Correct Answer
verified

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

Correct Answer
verified

Traditional Keynesians would argue that fluctuations in aggregate demand are closely tied to fluctuations in investment.

Correct Answer
verified

Which of the following economic theories favors an active role for government in promoting low inflation and economic growth?

Correct Answer
verified

In traditional Keynesian economics:

Correct Answer
verified

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

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 _____.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Monetarists believe that changes in monetary policy would have:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

New classical economists contend that an unexpected increase in the money supply will:

Correct AnswerverifiedShow Answer

In the fixed-price Keynesian model, what would be the impact of an increase in aggregate expenditure on the aggregate demand curve and real GDP?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

_____ school of thought would most likely be associated with the statement: "When wages are rigid, changes in output result in small changes in goods market prices and a relatively flat aggregate supply curve."

Correct AnswerverifiedShow Answer

The new classical school of thought is usually associated with the theory of rational expectations.

Correct AnswerverifiedShow Answer

Monetarists and new classical economists favor an active role of government in promoting low inflation and economic growth.

Correct AnswerverifiedShow Answer

New classical economists advocate less government intervention than the new Keynesian school of thought.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Traditional Keynesians would argue that fluctuations in aggregate demand are closely tied to fluctuations in investment.

Correct AnswerverifiedShow Answer

Which of the following economic theories favors an active role for government in promoting low inflation and economic growth?

Correct AnswerverifiedShow Answer

In traditional Keynesian economics:

Correct AnswerverifiedShow Answer

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