Question

A weakness of the neoclassical economic view is that it:

can overlook the long-term causes of economic growth like the existing natural rate of unemployment even when the economy is at potential GDP.

focuses on the long-term factors for economic growth and not the short-term causes of economic growth such as why unemployment fluctuates up and down over a few years.

can overlook the efficiency of the market economy in self-correcting in the long-run.

Keynes' Law says that demand creates its own supply. In the Keynesian zone of the short-run aggregate supply curve, how is this law supported?

Increasing aggregate demand changes prices relatively little, but does effectively increase aggregate outputs because of the excess capacity in the economy.

Aggregate demand either increasing or decreasing has a large effect on prices and little effect on aggregate supply because the economy is close to full capacity.

When aggregate demand decreases, prices remain relatively static and outputs remain unchanged because the economy lacks excess capacity.

The economy moves between recessions (high unemployment), and inflationary times causing inflationary problems. According to the Keynesian economic view, during a briskly productive economy which causes inflation and prices to rise, contractionary fiscal policies should be used. These type of policies include ________.

increasing government spending and tax cuts

influencing the federal funding rate by increasing the discount rate

decreased government spending and tax increases

Considering the Neoclassical aggregate supply curve. If there is a rightwards shift of the AD curve along this AS curve, the result will be that

price level remains the same.

a price level increase.

a price level decrease.

Answer 1