Question

Consider the neoclassical zone in the graph above. Which of the following is a true statement about Say’s Law in the neoclassical zone?

LRAS ADn SRAS ADi ADk En Ei a Pi ----Intermediate zone Ek Keynesian zone Yi Yn Real GDP

Shifts of the AD curve have little to no effect on supply output because the LRAS at full output is creating demand.

Because equilibrium is close to or at potential GDP, unemployment is affected by shifts in the AD curve.

Movement of the AD curve to the right or to the left shifts the LRAS curve.

What is the one area in which both Neoclassical and Keynes economic perspectives agree when it comes to the macroeconomy?

Aggregate demand is a useful tool for controlling inflation.

Prices and wages are flexible.

Say’s Law is displayed in which of the following examples?

During the 1970s many people hoarded money instead of purchasing goods and services.

The clothing industry, in order to create more output, needs to focus on increasing production rather than demand.

The economy of the country of Cuba has set fixed prices and wages for both the short and long term.

The country of Bratislaka hired Gudurn to assist with government policies regarding the macroeconomy. Gudrun is a neoclassical economist and makes all decisions based on those economic philosophies. What policies will Gudrun tell the government to enact in order to foster a health economy?

The government should increase production output through regulating sales of resources and strictly monitor exports and imports.

The government should set up and regulate wages and unions, and set price floors and ceilings for specific fundamental goods.

The government should keep inflation low and maintain low tax levels over the long run.

Answer 1

Question 1)option A)

In neo classical zone, SRAS curve is near vertical, if AD curve cuts the SRAS curve in this zone, then output is at or near pitenpote GDP level.

Thus shifts of aggregate demand to the right or left have little effect on output level or on employment level.

Q2) option A)

In Keynesianism, wages & prices are not flexible, rather they are rigid, thus markets ( both product & Labor) not always clear.

Where as prices & wages are assumed to be perfectly flexible at equilibrium in neoclassical economics.

Q3) option b)

Say 's law implies that supply creates its own demand , so if production will increase , then it will create it's own demand.

Q4) option c)

Since neoclassical economics assumes that wages & prices are flexible, so option b is wrong.

& Neoclassical economics focus on long run