Question 1

If the traditional Keynesian views turn out to be accurate, an increase in government spending would:

Accepted Answer

A)  increase the price level.
B)  decrease the investment.
C)  increase the equilibrium level of real GDP.
D)  decrease the consumption.
E)  decrease the money supply.F) D) and E)
G) B) and D)

Question 2

Which of the following economic theories takes 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 theoryF) A) and E)
G) All of the above

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) C) and E)
G) A) and E)

Question 4

According to the new Keynesians:

Accepted Answer

A)  prices adjust to equate demand and supply in every market simultaneously.
B)  random variations in the money supply are the original source of economic fluctuations.
C)  unemployment is voluntary.
D)  aggregate supply shocks can be a prime source of economic instability.
E)  government policy cannot stabilize the economy.F) A) and D)
G) A) and E)

Question 5

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) B) and E)
G) B) and D)

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

The new classical school holds that:

Accepted Answer

A)  macroeconomic equilibrium is achieved only through active government intervention.
B)  unemployment is only temporary, because the economy tends naturally toward equilibrium.
C)  rigid prices and wages prevent the economy from achieving equilibrium.
D)  macroeconomic equilibrium cannot occur as long as the aggregate supply curve is vertical.
E)  rational expectations result in involuntary unemployment and prolonged periods of macroeconomic disequilibrium.F) C) and D)
G) A) and B)

Question 9

The time it takes for a particular monetary policy to change income is called the _____.

Accepted Answer

A)  recognition lag
B)  data lag
C)  reaction lag
D)  effect lag
E)  action lagF) D) and E)
G) C) and E)

Question 10

Both new classical economists and monetarists disagree with Keynesians about the optimal degree of involvement of the government in determining the equilibrium level of real GDP.

Accepted Answer

A) True 
 B)False

Question 11

According to monetarists, changes in the money supply have long-lasting effects on the equilibrium level of real GDP.

Accepted Answer

A) True 
 B)False

Question 12

Suppose the central bank increases the money supply in an economy unexpectedly during a year.If the current inflation rate in this country is 3.4 percent, then according to new classical economists the expected inflation rate for the following year would be:

Accepted Answer

A)  3.4 percent.
B)  less than 3.4 percent.
C)  2.4 percent, because people form their expectations adaptively.
D)  around 6.8 percent.
E)  greater than 3.4 percent.F) A) and D)
G) D) and E)

Question 13

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) None of the above
G) B) and E)

Question 14

Which of the following thoughts do the Keynesian and the new Keynesian economists share?

Accepted Answer

A)  The belief that wages and prices are not flexible in the short run
B)  The belief that the aggregate supply curve is always a horizontal line
C)  The belief that the government's role in the economy should be minimized
D)  The belief that the natural rate of unemployment in an economy is always zero
E)  The belief that only unexpected changes can affect real GDPF) C) and E)
G) A) and B)

Question 15

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.F) D) and E)
G) All of the above

Question 16

Which of the following schools of thought believes that wages and prices are rigid in the short run?

Accepted Answer

A)  Keynesians and new Keynesians
B)  Only monetarists
C)  Only new classical economists
D)  Monetarists and new classical economists
E)  Monetarists and KeynesiansF) All of the above
G) A) and C)

Question 17

Which of the following is the basic tenet of new classical economics?

Accepted Answer

A)  A change in the fiscal policy affects the equilibrium level of real GDP but has no impact on the equilibrium price level.
B)  A government-induced shift in aggregate demand affects the real GDP only if they are expected by the economic agents.
C)  A change in aggregate demand affects the aggregate price level only if the aggregate supply curve is perfectly elastic.
D)  A change in monetary policy affects the equilibrium level of real GDP only if those changes are unexpected.
E)  An expected change in a monetary or fiscal policy leads to a proportional shift of the long run supply curve.F) B) and C)
G) A) and B)

Question 18

Agreeing with Keynesian economists, monetarists believe that the economy is subject to disequilibrium that must be corrected by government action.

Accepted Answer

A) True 
 B)False

Question 19

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) B) and D)
G) B) and E)

Question 20

Which of the following is true of the simple Keynesian model?

Accepted Answer

A)  Price level increases with increase in aggregate demand
B)  The aggregate supply curve is assumed to be perfectly inelastic
C)  The aggregate demand curve is assumed to perfectly elastic
D)  Price level is solely determined by the aggregate demand curve
E)  Changes in aggregate demand determine equilibrium real GDPF) C) and D)
G) B) and E)

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

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

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If the traditional Keynesian views turn out to be accurate, an increase in government spending would:

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Which of the following thoughts do the Keynesian and the new Keynesian economists share?

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Which of the following is true of the simple Keynesian model?

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In traditional Keynesian economics:

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Which of the following schools of thought believes that wages and prices are rigid in the short run?

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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?

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According to monetarists, changes in the money supply have long-lasting effects on the equilibrium level of real GDP.

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Agreeing with Keynesian economists, monetarists believe that the economy is subject to disequilibrium that must be corrected by government action.

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Which of the following is the basic tenet of new classical economics?

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

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The time it takes for a particular monetary policy to change income is called the _____.

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

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

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The recognition lag refers to the:

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Suppose the central bank increases the money supply in an economy unexpectedly during a year.If the current inflation rate in this country is 3.4 percent, then according to new classical economists the expected inflation rate for the following year would be:

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Both new classical economists and monetarists disagree with Keynesians about the optimal degree of involvement of the government in determining the equilibrium level of real GDP.

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According to the new Keynesians:

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

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The new classical school holds that:

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