Question 1

Did Keynes believe that Say's Law was right? Explain.

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Question 2

Suppose the economy is experiencing rapid growth and the unemployment rate is below the natural rate. Using aggregate supply and aggregate demand, explain how the economy adjusts back to potential GDP (full employment).

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Question 3

Using the money supply and money demand model, explain why money can be neutral in the long run.

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Question 4

What type of fiscal policy will lead to crowding out in the long run?

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Question 5

How can a government policy be used to prevent a wage- price spiral? Explain.

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Question 6

Briefly discuss the classical view of the labor market. Specifically, to what extent can unemployment occur based on the classical view? Explain.

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Question 7

What is a wage- price spiral?

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Question 8

Does crowding out occur in the long run or the short run? Explain.

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Question 9

Explain the concept of crowding out.

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Question 10

Comment on the following statement: "Economists who believe that the economy adjusts rapidly to full employment generally oppose using monetary or fiscal policy to stabilize the economy."

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Question 11

Suppose that the natural rate of unemployment for the economy is 6 percent and the economy is currently experiencing a 4 percent unemployment rate. Explain what will likely happen to wages and prices as the economy adjusts to the long- run equilibrium.

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Question 12

Suppose that an economy is currently producing a level of output that is greater than potential output. What impact will this situation have on the demand for money? Explain.

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Question 13

What is the difference between the short run and the long run in macroeconomics?

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Question 14

Classical economists believe that recessions are self correcting. In their view, how does the economy correct itself?

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Question 15

Suppose an economy is currently producing at a level below full employment. Explain what will likely happen to wages and prices.

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Question 16

Is money neutral in the short run? Explain.

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Question 17

What is Say's Law?

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Question 18

Suppose the economy is in a recession and the unemployment rate is higher than the natural rate. Using aggregate supply and aggregate demand, explain how the economy adjusts back to potential GDP.

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Question 19

Suppose the economy is initially operating at the potential level of output. Graphically illustrate and explain what effect a one- time permanent reduction in the money supply will have on output and the price level in the short run and in the long run.

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Question 20

Suppose the economy is initially operating at the potential level of output. Graphically illustrate and explain what effect a one- time increase in government spending will have on output and the price level in the short run and in the long run.

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