Keynesian V. New Classical Economics
Please remember that you only have until 11:59 pm on Sunday night. Take your time and feel free to use your notes. Good Luck!
- 1.According to which macroeconomic theory is decreasing taxes and increasing government spending a sound policy to recover from a recession?
- A.
New Classical
- B.
Keynesian
- C.
Monetarist
- D.
Rational Expectation
- 2.Which statement is most consistent with the New Classical Theory?
- A.
The velocity of money is unstable.
- B.
The Federal Reserve should set interest rate targets.
- C.
Government fiscal and monetary policies cause more economic instability than stability.
- D.
Fiscal policy works better than monetary policy.
- 3.Demand Side economics is
- A.
A school of economics that believes tax cuts can help an economy by raising supply.
- B.
The idea that free markets can regulate themselves.
- C.
The idea that government spending and tax cuts help an economy by raising demand.
- D.
A form of economics that directs government to eliminate spending and to increase taxes.
- 4.Demand Side economics is
- A.
A school of economics that believes tax cuts can help an economy by raising supply.
- B.
The idea that free markets can regulate themselves
- C.
The idea that government spending and tax cuts help an economy by raising demand.
- D.
A form of economics that directs government to eliminate spending and to increase taxes.
- 5.The maximum output that an economy can produce without large increases in inflation is
- A.
Productive capacity.
- B.
The multiplier effect.
- C.
The automatic stabilizer.
- D.
The Council of Economic Advisers (CEA).
- 6.Classical Economics is
- A.
The idea that every one dollar of government spending creates more than one dollar in economic activity.
- B.
The idea that free markets can regulate themselves.
- C.
The idea that government spending and tax cuts help an economy by raising demand
- D.
A form of demand-side economics that encourages government action to increase or decrease demand and output
- 7.Which of the following economic schools of thought is known for viewing the economy "as a whole"?
- A.
Council of Economic Advisers
- B.
Keynesian Economics
- C.
Supply side economics
- D.
Classical Economics
- 8.Recessions and depressions can occur because of too little aggregate demand for goods and services.
- A.
Keynesian Theory
- B.
New Classical Theory
- 9.Inflation can occur because of too much aggregate demand for goods and services.
- A.
Keynesian Theory
- B.
New Classical Theory
- 10.Government can influence macroeconomic activity by influencing aggregate demand through fiscal and monetary policies.
- A.
Keynesian Theory
- B.
New Classical Theory
- 11.Fiscal policy (changes in government spending and taxes) is more powerful than monetary policy (changes in the money supply and interest rates).
- A.
Keynesian Theory
- B.
New Classical Theory
- 12.Monetary policy affects investment spending through interest rates.
- A.
Keynesian Theory
- B.
New Classical Theory
- 13.The government’s power to influence the macroeconomy is limited and often ineffective.
- A.
Keynesian Theory
- B.
New Classical Theory
- 14.Consumers, business leaders, and investors are intelligent decision makers and take the effects of government policies into account in deciding on their behavior.
- A.
Keynesian Theory
- B.
New Classical Theory
- 15.People’s actions often offset the effects of government fiscal and monetary policies.
- A.
Keynesian Theory
- B.
New Classical Theory
- 16.Monetarists believe the government should increase the money supply 3 to 5 percent a year and do no more.
- A.
Keynesian Theory
- B.
New Classical Theory
- 17.Rational Expectations theorists emphasize the role of forward-looking expectations in affecting economic growth, inflation and unemployment.
- A.
Keynesian Theory
- B.
New Classical Theory
- 18.Monetary and fiscal policies affect expectations and have unanticipated secondary effects that make these policies ineffective.
- A.
Keynesian Theory
- B.
New Classical Theory
- 19.Why do New Classical theorists believe that monetary and fiscal policies will be ineffective? (Another way to think about this question is why do Keynesian economists think their policies will work?_
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