Title: Neoclassical Economics
Course: TEST Course

Q: Which of the following is a building block of neoclassical economics?
- The size of the economy is determined by aggregate demand.
- Wages and prices tend to be sticky.
- Most unemployment is cyclical.
- Wages and prices will adjust in a flexible manner.
A: Wages and prices will adjust in a flexible manner.

Q: What is one of the cornerstones on which neoclassical economics is built?
- Aggregate demand determines the size of the economy.
- Prices and wages lend themselves to stickiness.
- Unemployment is mostly cyclical.
- Prices and wages will adjust in a flexible manner.
A: Prices and wages will adjust in a flexible manner.

Q: The neoclassical perspective on macroeconomics emphasizes that in the long run, the economy seems to rebound back to its ________ and its ________.
- long-term growth; cyclical unemployment
- potential GDP; cyclical unemployment rate
- real GDP; natural rate of unemployment
- potential GDP; natural rate of unemployment
A: potential GDP; natural rate of unemployment

Q: In the neoclassical view, the economy has a ________ to move back to potential GDP.
- rational tendency
- tendency to be unable
- self-correcting tendency
A: self-correcting tendency

Q: From a neoclassical viewpoint, government should focus less on
- long-term growth.
- flexible prices.
- government stimulus spending.
A: government stimulus spending.

Q: Government, from a neoclassical perspective, should have the intent to focus less
- on growth in the long-term.
- on prices that are flexible.
- on stimulus spending.
A: on stimulus spending.

Q: ________ economists place an emphasis on ________-run economic performance.
- Phillips; short
- Keynesian; long
- Neoclassical; long
A: Neoclassical; long

Q: What type of economic viewpoint puts an emphasis on long run economic performance?
- Phillips
- Keynesian
- Neoclassical
A: Neoclassical

Q: From a neoclassical view, which of the following is least important?
- encouraging long-term growth
- stimulating potential GDP
- increasing aggregate demand to fight unemployment
A: increasing aggregate demand to fight unemployment

Q: Which of the following is least important according to the neoclassical viewpoint?
- encouraging long-term growth
- stimulating potential GDP
- increasing aggregate demand to fight unemployment
A: increasing aggregate demand to fight unemployment

Q: Say’s Law:
- is widely held to be more accurate in the short run rather than the long term.
- is a central belief of Keynesian economists.
- states supply creates its own demand.
A: states supply creates its own demand.

Q: Say’s Law:
- states demand creates its own supply.
- is a central belief of Keynesian economists.
- is widely held to be more accurate in the long run rather than the short term.
A: is widely held to be more accurate in the long run rather than the short term.

Q: The classic quote from the movie Field of Dreams, “If you build (produce) it they will come (purchase),” can be used to describe ________.
- Keynesian economic policy
- the short-run
- Say’s Law
A: Say’s Law

Q: If you hear someone say, “If you build (produce) it they will come (purchase)” you know it is a good way to describe ________.
- Keynesian economic policy
- short-run economics
- Say’s Law
A: Say’s Law

Q: Which of the following statements would be inconsistent with Say’s law?
- A given value of supply must create an equivalent value of demand in the economy.
- The economy has flexible prices and wages.
- The best way to foster an economy is through government stimulus spending.
A: The best way to foster an economy is through government stimulus spending.

Q: Identify the following statement consistent with Say’s law?
- The best way to foster an economy is through government stimulus spending.
- The economy has set wages and prices.
- In the economy a supply value must create an equivalent demand value.
A: In the economy a supply value must create an equivalent demand value.

Q: Which of the following is an example of Say’s law?
- The economy of the country of Wakanda has set fixed prices and wages for both the short and long term.
- During the 2008-10 many people hoarded money instead of purchasing goods..
- The automotive industry, in order to create more output, need to focus on increasing production rather than demand.
A: The automotive industry, in order to create more output, need to focus on increasing production rather than demand.

Q: Say’s Law is displayed in which of the following examples?
- The economy of the country of Cuba has set fixed prices and wages for both the short and long term.
- 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.
A: The clothing industry, in order to create more output, needs to focus on increasing production rather than demand.

Q: Why do neoclassical economists tend to put relatively more emphasis on long-term growth than on fighting recession?
- Price and wage stickiness are reasonable in the short run.
- Government focuses more on recession and cyclical unemployment.
- The upward trend of potential GDP determines the rate of inflation.
- Because in the long run, recessions always end.
A: Because in the long run, recessions always end.

Q: Neoclassical economists have a tendency to put more emphasis on long-term growth than on fighting recession. Why is this the case?
- Wage stickiness and price are reasonable in the short run.
- Government focuses more on cyclical unemployment and recessions.
- The rate of inflation is determined by the upward trend of potential GDP.
- Because over the long run, recessions end.
A: Because over the long run, recessions end.

Q: Which of the following schools of thought believe that the economy is self-regulating and always at full employment?
- Keynesian
- activist
- neoclassical
A: neoclassical

Q: The ________ perspective tends to view inflation as a cost that offers no offsetting gains in terms of lower unemployment.
- Keynesian
- flexible wage and price
- neoclassical
A: neoclassical

Q: If a country experienced a natural disaster which wiped out a quarter of its capital stock, what would happen in the long run to its potential GDP?
- It would at first fall dramatically and remain below its pre-disaster level indefinitely.
- The capital stock would remain unaffected and continue on as usual.
- It would fall in the short-term and then rise back to pre-disaster levels in the long-term.
A: It would fall in the short-term and then rise back to pre-disaster levels in the long-term.

Q: The country of South Wales experienced a tsunami which wiped out half of its capital stock. What will happen, according to neoclassical perspective, to the country’s potential GDP?
- It would at first fall dramatically and remain below its pre-tsunami level indefinitely.
- The capital stock would remain unaffected and continue on as usual.
- It would fall in the short-term and then rise back to pre-tsunami levels in the long-term.
A: It would fall in the short-term and then rise back to pre-tsunami levels in the long-term.

Q: The fictional country of Zambezi’s economy is operating at its potential GDP and is looking to expand its output levels. What would increase Zambezi’s output according to neoclassical thinking?
- Zambezi adds more capital.
- Zambezi adds more laborers.
- Zambezi has technological breakthroughs or improvements.
A: Zambezi has technological breakthroughs or improvements.

Q: If the country of Switzerland has its economy operating at its potential GDP, but plans to expand its output levels, according to neoclassical thinking, what would increase the country’s outputs?
- Adding more capital.
- Adding more laborers.
- Technological improvements
A: Technological improvements

Q: Neoclassical economists argue that
- the long run aggregate supply curve is below the level of potential GDP.
- the long run aggregate supply curve moves gradually to the left as potential GDP grows.
- the long run aggregate supply curve is vertical.
A: the long run aggregate supply curve is vertical.

Q: The argument of neoclassical economists is that
- the long run aggregate supply curve is horizontal.
- the long run aggregate supply curve moves gradually to the left as potential GDP grows.
- the long run aggregate supply curve is at the level of potential GDP.
A: the long run aggregate supply curve is at the level of potential GDP.

Q: A rightwards shift of the AD curve along the Neoclassical portion of the aggregate supply curve will result in
- no effect on the price level.
- a decrease in the price level.
- an increase in the price level.
A: an increase in the price level.

Q: 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 decrease.
- a price level increase.
A: a price level increase.

Q: A vertical AS curve means that in the long run, the level of aggregate supply (or potential GDP) will determine the real GDP of the economy, regardless of the level of:
- cyclical unemployment.
- real unemployment.
- aggregate demand.
A: aggregate demand.

Q: If aggregate supply is vertical, then which of the following statements must be true of the long-run?
- Aggregate demand does not cause changes in the price level.
- Inflation will accompany any rise in output.
- Aggregate demand does not affect the quantity of output.
A: Aggregate demand does not affect the quantity of output.

Q: Aggregate demand is more likely than aggregate supply to ________ in the short run.
- remain unchanged
- increase slightly
- shift substantially
A: shift substantially

Q: In the short run, aggregate demand is more likely than aggregate supply to
- remain unchanged.
- slightly increase.
- substantially shift.
A: substantially shift.