Question 1

Which of the following school 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 focus on the role of market failures and the need for government intervention to stabilize the economy. They believe that the private labor and goods market can experience persistent and inefficient equilibria, leading to macroeconomic problems such as recessions and high unemployment.

Question 2

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 in the Phillips Curve relationship between money supply, employment, and inflation. In the short run, an increase in the money supply leads to lower interest rates, which encourages investment and consumption. However, this can also lead to inflation, which reduces the real value of money and potentially offsets the benefits of increased investment and consumption.

Question 3

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, developed by John Maynard Keynes, became popular in the 1930s as it addressed the failures of classical economics to explain and resolve the Great Depression, advocating for increased government intervention and spending to boost demand.

Question 4

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

According to Keynesian economics, the economy is not self-regulating and requires government intervention to manage aggregate demand and achieve a satisfactory level of real GDP. This intervention can include fiscal policy, such as changes in government spending and taxation, and monetary policy, such as changes in interest rates and the money supply.

Question 5

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

The monetarists argued that the Fed should focus on controlling the money supply, rather than targeting interest rates.

Question 6

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 new classical school emphasizes rational expectations, where individuals use all available information, including government plans, to make informed decisions about the future.

Question 7

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 believe that market failures can lead to economic instability and advocate for government intervention to stabilize the economy. They favor an active role for the government in promoting low inflation and economic growth through monetary and fiscal policies.

Question 8

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

Accepted Answer

Traditional Keynesian theory asserts that changes in investment levels are a significant determinant of changes in aggregate demand, which in turn affects employment levels, prices, and economic output.

Question 9

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

Accepted Answer

New Keynesians believe that a decrease in government spending reduces aggregate demand, which in turn reduces inflation.

Question 10

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

Accepted Answer

Monetarists believe that changes in the money supply primarily affect nominal variables and have only short-term effects on real GDP, as the economy eventually returns to its natural level of output.

Question 11

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

Accepted Answer

Milton Friedman was a prominent economist who argued for the importance of money supply in economic policy, and his ideas became the basis of monetarism.

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 typically view the aggregate supply curve as relatively flat at low levels of real GDP, indicating that output can increase without causing much inflation. However, it slopes upward, not downward, as real GDP approaches its potential level, reflecting increasing inflationary pressures.

Question 13

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, which is why changes in aggregate demand can lead to changes in output and employment rather than prices.

Question 14

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

Both Keynesians and new Keynesians believe that wages and prices are rigid or sticky in the short run, which leads to market inefficiencies and the need for government intervention to stimulate demand and increase employment. Monetarists and new classical economists, on the other hand, emphasize the role of money supply and aggregate supply in determining output and prices, and typically assume that markets adjust quickly to changes in economic conditions.

Question 15

According to the monetarists, inflation is primarily caused by an increase in the money supply.

Accepted Answer

Monetarists believe that inflation is primarily caused by an increase in the money supply, as excess money chasing the same amount of goods and services leads to a rise in prices. This view is in contrast to other theories of inflation, such as cost-push inflation and demand-pull inflation.

Question 16

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

New Keynesian economics primarily differs from traditional Keynesian economics in its incorporation of microeconomic foundations, such as price and wage stickiness, rather than focusing on international trade differences.

Question 17

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 acknowledges that fiscal policy can be effective in addressing supply-side shocks by influencing demand and stabilizing the economy, although it may not directly address the supply constraints.

Question 18

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 19

According to the monetarists, government intervention can stabilize the economy and minimize the effect of business cycles.

Accepted Answer

Monetarists believe that economic stability can best be achieved by controlling the money supply and minimizing government intervention. They argue that government intervention, particularly through fiscal policy, can often lead to unintended consequences and destabilize the economy further.

Question 20

Monetaristsargue that the long-run Phillips curve is negatively sloped.

Accepted Answer

Monetarists argue that the Phillips curve is vertical in the long run, meaning there is no trade-off between inflation and unemployment.

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

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

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.

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