Question

[8] In Keynesian economics the most important factor determining whether the level of economic activity is growing or shrinking is:
A) the multiplier effect.
B) government expenditure and tax policies.
C) the behavior of nonincome-determined spending.
D) the relationship between leakages from and injections into the spending stream.

[9] Using the Keynesian approach, if leakages from the spending stream are less than injections, the current level of output is:
A) less than the equilibrium level of output, and will increase.
B) less than the equilibrium level of output, and will decrease.
C) greater than the equilibrium level of output, and will increase.
D) greater than the equilibrium level of output, and will decrease.

[10] Using the Keynesian approach, if leakages from the spending stream are less than injections into the spending stream, total spending will be:
A) less than total output, and total output will decrease.
B) less than total output, and total spending will increase.
C) greater than total output, and total output will increase.
D) greater than total output, and total spending will decrease.


[11] A primary assumption of new classical economics is:
A) wages and prices are not flexible.
B) an upward sloping aggregate demand curve.
C) over the long run the economy will operate at the natural rate of unemployment.
D) all of these answers are correct.

[12] According to new classical economics, the wealth effect, the interest rate effect, and the foreign trade effect:
A) keep the economy from operating at full employment.
B) cause the aggregate supply curve to be upward sloping.
C) cause the aggregate demand curve to be downward sloping.
D) none of these answers are correct.

[13] In the new classical model, the aggregate supply curve is:
A) upward sloping in both the short run and the long run.
B) perfectly vertical at the natural rate of unemployment in both the short run and the long run.
C) upward sloping in the short run and perfectly vertical at the natural rate of unemployment in the long run.
D) perfectly vertical at the natural rate of unemployment in the short run and upward sloping in the long run.

[14] A primary conclusion of new classical economics is:
A) wages and prices are inflexible downward.
B) there is no short run tradeoff between unemployment and inflation.
C) a free market economy can operate at less than full employment for long periods of time.
D) government intervention in the economy will be rendered ineffective by the responses of businesses and households to these policies.

[15] According to the rational expectations approach, an announcement that interest rates may be raised to curb inflation would likely cause businesses and households to:
A) put political pressure on officials to cancel the planned interest rate changes.
B) go along with the policy knowing that it is in their best interest to curb inflation.
C) immediately borrow and increase their spending to beat the rise in the interest rates.
D) reduce borrowing and depend more on the expenditure of saved income and earnings.

Answer 1