Question 1

Keynesian economists believe that
A) the aggregate demand shocks have only short-lived effects on real output.
B) the aggregate demand shocks have long-lived effects on real output.
C) the aggregate supply shocks are the source of business cycles.
D) government policies are not useful in responding to the shocks.

Accepted Answer

Keynesian economists believe that aggregate demand shocks have long-lived effects on real output, which can lead to prolonged periods of unemployment and underutilization of resources. They argue that government policies, such as fiscal stimulus and monetary policy, can help mitigate the effects of these shocks and stabilize the economy. They do not believe that aggregate supply shocks are the primary source of business cycles.

Question 2

Describe the major features of the business cycle. Be sure to discuss what variables are affected by the cycle, a description of the key features that are apparent in the data, how variables are related to one another, how regular the cycle is, and how predictable the cycle is.

Accepted Answer

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Question 3

Describe briefly what are the major differences between the classical economists and the Keynesian economists with regard to causes of business cycles, long-run adjustments to shock, and the government policies in restoring the full employment.

Accepted Answer

The answer of Describe briefly what are the major differences...

Question 4

According to classical economists
A) the aggregate demand shocks are the source of business cycles.
B) the aggregate supply shocks are the source of business cycles.
C) the aggregate demand shocks have long-run effects on output.
D) the aggregate supply curve is horizontal.

Accepted Answer

According to classical economists, the source of business cycles is aggregate supply shocks. This means that changes in production costs, such as increases in wages or raw material prices, can shift the aggregate supply curve and cause fluctuations in output and employment. This is in contrast to Keynesian economists, who believe that aggregate demand shocks are the primary cause of business cycles.

Question 5

When a recession occurs, do economists expect it to be a temporary phenomenon? Or is there some degree of permanence? What is the empirical evidence?

Accepted Answer

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Question 6

The technological improvement will lead to a
A) rightward shift in the long-run aggregate supply, lowering price and increasing output.
B) leftward shift in the long-run aggregate supply, lowering price and lowering output.
C) rightward shift in the long-run aggregate supply, increasing price and lowering output.
D) leftward shift in the long-run aggregate supply, increasing price and increasing output.

Accepted Answer

Technological improvement increases productivity and efficiency, resulting in lower costs of production. This leads to a rightward shift in the long-run aggregate supply curve, which increases output and lowers prices. Therefore, the correct choice is A.

Question 7

In the long run, an increase in productivity would cause output to ________ and the aggregate price level to ________.
A) fall; rise
B) fall; fall
C) rise; fall
D) rise; rise

Accepted Answer

An increase in productivity leads to a decrease in production costs, which eventually leads to an increase in output in the long run. This increase in output causes an increase in aggregate supply, leading to a decrease in the aggregate price level. Therefore, in the long run, an increase in productivity would cause output to rise and the aggregate price level to fall.

Question 8

According to Keynesian macroeconomists, prices adjust ________ to shocks, so the government should ________.
A) slowly; do little
B) rapidly; do little
C) rapidly; fight recessions
D) slowly; fight recessions

Accepted Answer

According to Keynesian macroeconomists, prices adjust slowly to shocks, so the government should intervene to fight recessions. This is because in the short run, the economy may settle at a level of output below its potential due to insufficient aggregate demand. The government can use expansionary fiscal or monetary policy to stimulate demand and raise output to its potential.

Question 9

The classical view that the economy reaches its long-run equilibrium quickly implies that
A) the aggregate demand shocks have only short-lived effects on output.
B) the aggregate supply shocks have only short-lived effects on output.
C) the aggregate demand shocks have only long-lived effects on output.
D) the aggregate demand shocks are the source of business cycles.

Accepted Answer

The classical view suggests that markets are efficient and that prices and wages adjust quickly, allowing the economy to reach its long-run equilibrium rapidly. This implies that any shocks to aggregate demand - such as changes in consumer confidence or government spending - will only have short-lived effects on output. In other words, the economy will quickly adjust to returning output to its natural level.

Question 10

How has the severity and duration of business cycles changed over time in Canada?

Accepted Answer

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Question 11

According to classical macroeconomists, prices adjust ________ to shocks, so the government should ________.
A) slowly; do little
B) rapidly; do little
C) rapidly; fight recessions
D) slowly; fight recessions

Accepted Answer

Classical macroeconomists believe that prices adjust rapidly to shocks, which allows the economy to quickly return to equilibrium without the need for government intervention. Therefore, they generally advocate for the government to do little in response to economic fluctuations.

Question 12

Which of the following is correct?
A) An adverse aggregate demand shock reduces output and price in both the short run and the long run.
B) An adverse aggregate demand shock reduces output but increases price in the short run and will have no effect on output and price in the long run.
C) An adverse aggregate demand shock reduces output in the short run, but will have no effect on output in the long run.
D) An adverse aggregate demand shock reduces output and price in the short run and increases both in the long run.

Accepted Answer

An adverse aggregate demand shock reduces output in the short run due to decreased spending, but in the long run, prices and wages adjust, and output returns to its natural level.

Question 13

In the long run, an increase in consumer spending would cause output to ________ and the price level to ________.
A) rise; rise
B) rise; stay constant
C) stay constant; stay constant
D) stay constant; rise

Accepted Answer

The answer of In the long run, an increase in...

Question 14

For each outcome below, tell what type of shift must have taken place in either the aggregate demand curve or the long-run aggregate supply curve.
a. In the short run, the price level is unchanged and output rises.
b. In the long run, the price level declines and output is unchanged.
c. In the long run, the price level rises and output declines.

Accepted Answer

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Question 15

What are some of the problems with using the leading indicators to forecast recessions? If you were a policymaker, would you rely on them?

Accepted Answer

The answer of What are some of the problems with...

Question 16

In the long run, a reduction in labor supply would cause output to ________ and the aggregate price level to ________.
A) fall; rise
B) fall; fall
C) rise; fall
D) rise; rise

Accepted Answer

A reduction in labor supply would decrease the production capacity of the economy, leading to a fall in output. As the supply of goods and services decreases, the aggregate price level would rise due to increased scarcity. Therefore, the correct choice is A) fall; rise.

Quiz 8: Business Cycles

Keynesian economists believe that

Describe the major features of the business cycle. Be sure to discuss what variables are affected by the cycle, a description of the key features that are apparent in the data, how variables are related to one another, how regular the cycle is, and how predictable the cycle is.

Describe briefly what are the major differences between the classical economists and the Keynesian economists with regard to causes of business cycles, long-run adjustments to shock, and the government policies in restoring the full employment.

According to classical economists

When a recession occurs, do economists expect it to be a temporary phenomenon? Or is there some degree of permanence? What is the empirical evidence?

The technological improvement will lead to a

In the long run, an increase in productivity would cause output to and the aggregate price level to .

According to Keynesian macroeconomists, prices adjust to shocks, so the government should .

The classical view that the economy reaches its long-run equilibrium quickly implies that

How has the severity and duration of business cycles changed over time in Canada?

According to classical macroeconomists, prices adjust to shocks, so the government should .

Which of the following is correct?

In the long run, an increase in consumer spending would cause output to and the price level to .

What are some of the problems with using the leading indicators to forecast recessions? If you were a policymaker, would you rely on them?

In the long run, a reduction in labor supply would cause output to and the aggregate price level to .