Keynesian and Classical Macroeconomic Models

What is an essential part of the basic original Keynesian model?

• A. A functioning price system in labor, commodity, and capital markets.

• B. Workers without expectations.

• C. A theory of prices as information.

• D. A condition of perfect employment equilibrium.

• E. Logical decision makers free of emotional bias.

Which of the following is true with respect to the classical macro model?

• A. Prices should move to correct supply imbalances only.

• B. Nominals affect nominals and reals affect reals.

• C. Unemployment resources are "idle" or in surplus because their price is too high.

• D. The foundation for effective demand is constituted in a former source of demand,

• E. The interest rate is a nominal variable.

Which economic policy model is not true for the various schools of macro thought?

• A. Keynesian-policy-economy-economic stabilization.

• B. Monetarist-policy-economy-short run effect on nominals, long run effect on reals.

• C. Rational expectations-policy-economy adjusts--no effect

• D. Supply-side-policy--economy adjusts-government revenues may or may not change.

• E. All of the above are true.

Robert Lucas would disagree with which aspect of business cycles?

• A. Random distortions are shocking the economy

• B. A long-run Phillips curve is vertical at the natural rate of unemployment.

• C. Shifting short-run Phillip's curves and a long-run vertical Phillip's curve

• D. Flexible prices.

• E. Real adjustment costs are present.

Which of the following does not describe why Say's Law is important?

• A. To connect microeconomic logic to macroeconomic theory.

• B. To restate the fundamental truth of the Quantity Theory of Money.

• C. To separate "effective demand" from "notional demand"

• D. To prevent us from assuming real resources come from nowhere.

• E. To prove that supply equals demand in all markets simultaneously (general equilibrium).

Suppose the natural rate of unemployment is 5% and the overall economy-wide unemployment rate is 12%. This would indicate:

• An unexpected inflation "shock"

• The economy is inside the production's possibility frontier

• The economy is in the long-run

• The economy is on its long-run growth trend rate

• Both A and D are true.

Which of the following is true?

• When a country runs a large merchandise trade deficit the country will enter a recession

• When a country runs a merchandise trade deficit, that country is running a Capital Account surplus

• The Capital Account counts the value of all imports and exports

• Services are generally over-counted in the Current Account

• Both C and D are true

Suppose the money supply increases by 8%, velocity decreases by 4%, and real output decreases by 3%. What is the rate of inflation or deflation?

• 7% inflation

• 7% deflation

• 15% inflation

• 5% deflation

• 1% inflation.

Suppose the money supply increases by 4%, velocity decreases by 4%, and real output decreases by 3%. What is the rate of inflation or deflation?

• 7% deflation

• 7% inflation

• 3% inflation

• 5% deflation

• 15% inflation.

What is true with respect to supply-side economics?

• Supply-side economics has never been demonstrated to work in practice

• Keynesians anticipated the supply-side revolution because they focused on fiscal policy (tax and spend)

• incentives are important for the production side of the economy