Question 1

The primary difference between new Keynesian economics and traditional Keynesian economics is that the former is more realistic about international trade, whereas the latter stresses the importance of inward oriented strategies.

Accepted Answer

The primary difference between new Keynesian economics and traditional Keynesian economics is actually the treatment of price and wage rigidities. New Keynesians use microeconomic foundations to explain why prices and wages may be sticky in the short-run, while traditional Keynesians argue that they are rigid due to market imperfections and the need for government intervention. Both schools of thought advocate for government intervention to stabilize the economy, but their justifications for this intervention differ.

Question 2

Which of the following schools of thought believes that wages and prices are rigid in the short run?
A) Keynesians and new Keynesians
B) Only monetarists
C) Only new classical economists
D) Monetarists and new classical economists
E) Monetarists and Keynesians

Accepted Answer

Keynesians and new Keynesians believe that wages and prices are rigid in the short run due to factors such as minimum wage laws, labor unions, and menu costs. Monetarists and new classical economists believe in flexible wages and prices in the short run.

Question 3

Monetarists would argue that in the short run, increases in the money supply act to raise both investment and consumption, while also increasing the price level.

Accepted Answer

Monetarists believe that an increase in the money supply results in an increase in demand for goods and services, which leads to an increase in investment and consumption. However, they also believe that in the long run, increases in the money supply only affect the price level, not real economic output.

Question 4

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

Accepted Answer

Traditional Keynesians believe that fluctuations in investment can drive fluctuations in aggregate demand, as investment is a key component of overall demand in an economy.

Question 5

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

Accepted Answer

Milton Friedman is indeed widely considered to be the father of monetarism, a school of thought in economics that emphasizes the role of the money supply in the economy and argues that monetary policy should be used to stabilize the economy.

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

Accepted Answer

The answer of The economic theory that suggested an alternative...

Question 7

An economist from which school of thought would most likely accept the following- "The wide acceptance and practice of activist government fiscal policy."
A) Traditional classical economics
B) Neoclassical economics
C) Marxist economics
D) New monetarist economics
E) Keynesian economics

Accepted Answer

Keynesian economics emphasizes the role of government intervention in stabilizing the economy through fiscal policy, such as government spending and taxation. Therefore, an economist from the Keynesian school of thought would most likely accept the wide acceptance and practice of activist government fiscal policy.

Question 8

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

Accepted Answer

New classical economics posits that rational expectations lead to adjustments in the economy that render monetary policy effective only when changes are unexpected, as individuals and businesses adjust their behavior in anticipation of policy changes.

Question 9

Which of the following promoted legislation that would give private citizens greater information regarding public policymaking?
A) The Keynesians
B) The monetarists
C) The new classicals
D) The traditional classicals
E) The consumer advocates

Accepted Answer

The answer of Which of the following promoted legislation that...

Question 10

According to the Keynesian school of thought, the economy is not self-regulating. That is, to achieve a satisfactory level of real GDP, the government often has to intervene by managing aggregate demand.

Accepted Answer

The statement accurately describes the Keynesian school of thought, which believes that government intervention is necessary in managing aggregate demand to achieve full employment and economic stability.

Question 11

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

Accepted Answer

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.

Question 12

Keynesian economists today favor a model in which the aggregate supply curve is relatively flat at low levels of real GDP and slopes downward as real GDP approaches its potential level.

Accepted Answer

Keynesian economists today generally favor a model in which the aggregate supply curve is relatively flat at low levels of real GDP (indicating that output can increase without much increase in prices) and becomes steeper as real GDP approaches its potential level, reflecting increasing price levels as output gaps close, not downward sloping.

Question 13

Which of the following schools of thought believes that the major source of the macroeconomic problems are the disequilibria in the private labor and goods market?
A) Keynesians and new Keynesians
B) Only monetarists
C) Only new classical economists
D) Monetarists and new classical economists
E) Monetarists and Keynesians

Accepted Answer

Keynesians and new Keynesians believe that macroeconomic problems arise from disequilibria in the private labor and goods market, as they argue that the market can remain stuck in a state of insufficient demand, leading to unemployment and other economic issues. Monetarists and new classical economists emphasize the role of money supply and monetary policies, and only new classical economists focus on the importance of rational expectations and market efficiency in explaining macroeconomic problems.

Question 14

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

Accepted Answer

New Keynesian economics does not claim fiscal policy is completely ineffective against supply-side shocks; it suggests that while fiscal policy can be less effective in such scenarios compared to demand-side shocks, it can still play a role in mitigating the effects of supply-side disturbances, especially by supporting demand or through targeted interventions.

Question 15

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

Accepted Answer

Traditional Keynesian economics assumes that prices are relatively sticky or inflexible in the short run, meaning they do not adjust immediately to changes in aggregate demand or expenditures.

Question 16

Which of the following economic theories favors an active role for government in promoting low inflation and economic growth?
A) New Keynesian
B) Monetarists
C) New classical economists
D) Classical economists
E) Marxists

Accepted Answer

New Keynesian economists advocate for government intervention during recessions, including increasing government spending and lowering interest rates to stimulate economic growth. They also support independent central banks to regulate inflation.

Question 17

New Keynesians argue that a decrease in government spending reduces inflation.

Accepted Answer

New Keynesians believe that decreasing government spending can reduce demand in the economy, which in turn can lower inflation by reducing the pressure on prices.

Question 18

Which of the following economic theories became popular in the 1930s in response to the shortcomings of existing theories of the Great Depression?
A) New classical theory
B) Classical theory
C) Traditional Keynesian theory
D) Monetarist theory
E) New Keynesian theory

Accepted Answer

Traditional Keynesian theory became popular in the 1930s as a response to the Great Depression. John Maynard Keynes introduced this theory, emphasizing the importance of total spending in the economy (aggregate demand) and its effects on output and inflation. This theory suggested that during periods of economic downturns, government intervention through fiscal policy (e.g., government spending and tax cuts) could help mitigate the effects of recessions.

Question 19

Which school calls for more information from policymakers so that people can incorporate government plans into their outlook for the future?
A) The new classical school
B) The new Keynesian school
C) The traditional Keynesian school
D) The monetarist school
E) The classical school

Accepted Answer

The answer of Which school calls for more information from...

Question 20

Which of the following schools of thought criticized the Fed's policy of targeting interest rates?
A) The new Keynesians
B) The Keynesians
C) The monetarists
D) The classical economists
E) The new classical economists

Accepted Answer

Monetarists, particularly associated with Milton Friedman, criticized the Federal Reserve's policy of targeting interest rates, arguing instead for a focus on controlling the money supply to manage inflation and economic stability.

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

The primary difference between new Keynesian economics and traditional Keynesian economics is that the former is more realistic about international trade, whereas the latter stresses the importance of inward oriented strategies.

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

Monetarists would argue that in the short run, increases in the money supply act to raise both investment and consumption, while also increasing the price level.

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

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

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

An economist from which school of thought would most likely accept the following- "The wide acceptance and practice of activist government fiscal policy."

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

Which of the following promoted legislation that would give private citizens greater information regarding public policymaking?

According to the Keynesian school of thought, the economy is not self-regulating. That is, to achieve a satisfactory level of real GDP, the government often has to intervene by managing aggregate demand.

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

Keynesian economists today favor a model in which the aggregate supply curve is relatively flat at low levels of real GDP and slopes downward as real GDP approaches its potential level.

Which of the following schools of thought believes that the major source of the macroeconomic problems are the disequilibria in the private labor and goods market?

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

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

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

New Keynesians argue that a decrease in government spending reduces inflation.

Which of the following economic theories became popular in the 1930s in response to the shortcomings of existing theories of the Great Depression?

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

Which of the following schools of thought criticized the Fed's policy of targeting interest rates?