Chapter 13

Suppose that a rise in business confidence has led to more investment in the economy and higher levels of output. In the short-run Keynesian analysis, the rise in aggregate demand will:

lower unemployment.

cause government to lower taxes.

cause government to increase spending.

exports will drop.

lower unemployment.

Suppose that productivity growth in an economy over a two-year period has fallen to less than 2% per year, causing a severe recession. From the neoclassical view, which of the following will be more important in these circumstances?

an increase in the annual unemployment rate

an increase in short-term unemployment benefits

the problem of cyclical unemployment

the growth rate of long-term productivity

the growth rate of long-term productivity

A typical Keynesian aggregate supply (AS) curve _______________ and a typical Keynesian Phillips curve _____________.

is vertical; is vertical

slopes downward; slopes downward

slopes upward; slopes upward

slopes upward; slopes downward

slopes upward; slopes downward

Why do neoclassical economists tend to put relatively more emphasis on long-term growth than on fighting recessions?

price and wage stickiness is reasonable in the short run

government focuses more on recession and cyclical unemployment

standard of living is ultimately determined by long-term growth

upward trend of potential GDP determines the rate of inflation

standard of living is ultimately determined by long-term growth

If an economy experiences a decrease in aggregate demand due to a decline in consumer confidence and output falls below potential GDP, which of the following is likely to occur in the long run, according to the neoclassical model?

a decrease in employment and the price level

a decrease in the price level but no change in employment levels as the economy returns to full employment

a decrease in employment but no change in price level

an increase in the price level but no change in employment levels as the economy returns to full employment

a decrease in the price level but no change in employment levels as the economy returns to full employment

In the neoclassical model, economic growth over time shifts potential GDP and the ______________ gradually to the right.

vertical AS curve

vertical AD curve

vertical Phillips curve

45 degree AD curve

vertical AS curve

The Keynesian view of economics assumes that:

the Keynesian Phillips curve is vertical.

wages are sticky.

the economy must focus is on long-term growth.

economic output is primarily determined by aggregate supply.

wages are sticky.

The shape of the ______________ involves a tradeoff between unemployment and inflation.

aggregate demand curve

aggregate supply curve

Phillips curve

Keynesian demand curve

Phillips curve

Referring to a Keynesian or short-run Phillips curve, a reduction in inflation is likely to cause:

at least a slight increase in aggregate demand.

a vertical Phillips curve because aggregate supply remains fixed.

unemployment to remain constant in the long run.

at least a slight increase in unemployment.

at least a slight increase in unemployment.

In the long-run neoclassical view, when wages and prices are flexible, ________________________ determine the size of real GDP.

potential GDP and aggregate supply

potential GDP and aggregate demand

levels of output and aggregate supply

levels of wages and aggregate demand

potential GDP and aggregate supply

From a neoclassical view, which of the following is a true statement?

Lower wages will cause an economy-wide increase in the price of a key input.

Because wages are flexible, they are unaffected by high rates of unemployment.

A surge in aggregate demand ends up as a rise in output, but does not increase price levels.

The economy cannot sustain production above its potential GDP in the long run.

The economy cannot sustain production above its potential GDP in the long run.

A vertical aggregate supply curve, where the quantity of output is consistent with many different price levels, also implies:

an upward sloping Phillips curve.

a downward sloping aggregate demand curve.

a vertical aggregate demand curve.

a vertical Phillips curve.

a vertical Phillips curve.

If an economy experiences a decrease in aggregate demand due to a decline in consumer confidence and output falls below potential GDP, which of the following is likely to occur in the short run?

more consumption and less saving

adjustment back to potential GDP

increase in price inflation

a rise in unemployment

a rise in unemployment

Which of the following represents a Keynesian point of view of macroeconomics?

focus on long-term growth in the economy

aggregate supply is the primary determinate of economic output

creating increases in aggregate demand to reduce unemployment

vertical aggregate supply

creating increases in aggregate demand to reduce unemployment

In the neoclassical view, the economy has a _______________ to move back to potential GDP.

rational tendency

tendency to be unable

self-correcting tendency

immediate tendency

self-correcting tendency

From a neoclassical perspective, which of the following would most likely be viewed as an element that underpins long-run productivity growth in the economy?

flexible price levels

flexible market forces

investments in human capital

higher unemployment

investments in human capital

________________ economists place an emphasis on __________ run economic performance.

Phillips; short

Keynesian; long

Neoclassical; long

Says; short

Neoclassical; long

The neoclassical view holds that long-term expansion of potential GDP due to _______________________ will determine ____________________.

economic growth; the size of the economy

government spending; aggregate demand

government spending; aggregate supply

economic adjustments; cyclical unemployment

economic growth; the size of the economy

When a shift in ________________ occurs, rational expectations hold that its impact on output and employment will only be temporary.

aggregate demand

aggregate supply

wage levels

price levels

aggregate demand

From a neoclassical viewpoint, government should focus less on:

long-term growth.

controlling inflation.

aggregate supply.

cyclical unemployment.

cyclical unemployment.