Title: Keynesian and Neoclassical Perspectives
Course: TEST Course

Q: Keynes believed that economies are ________ driven in the ________ .
- demand; long-run
- supply; long-run.
- demand; short-run.
A: demand; short-run.

Q: According to economic laws explained by Keynes, it is believed that economies in the ________ and ________ driven.
- long-run; demand
- long-run; supply
- short-run; demand
A: short-run; demand

Q: Keynes understood that in the short-run wages and prices are ________ and therefore encourage the use of ________ to return an economy to equilibrium.
- rigid; monetary policy
- flexible; monetary policy
- rigid; fiscal policy.
A: rigid; fiscal policy.

Q: Keynes encourages the use of ________ to return an economy to equilibrium because of the perspective that in the short-run wages and prices are ________.
- monetary policy; rigid
- monetary policy; flexible
- fiscal policy; rigid
A: fiscal policy; rigid

Q: Which of the following statements is aligned with Say’s Law during a recession?
- One of the most effective ways to stimulate an economy is to levy larger corporate taxes.
- The most effective way to stimulate an economy is through strategic monopolies.
- An effective stimulant for a recessionary economy is providing subsidies for investors.
A: An effective stimulant for a recessionary economy is providing subsidies for investors.

Q: The statement, “An effective stimulant for a recessionary economy is providing subsidies for investors“ is aligned best with:
- Keynes Law.
- Supply and Demand Law.
- Say’s Law.
A: Say’s Law.

Q: When comparing Keynes and Neoclassical economics when it comes to an economy, what is the one area in which these two economic perspectives agree?
- Prices and wages are sticky.
- Aggregate demand is a useful tool for ending a recession.
- Aggregate demand is a useful tool for controlling inflation.
A: Aggregate demand is a useful tool for controlling inflation.

Q: What is the one area in which both Neoclassical and Keynes economic perspectives agree when it comes to the macroeconomy?
- Prices and wages are flexible.
- Economic output is primarily determined by aggregate demand.
- Aggregate demand is a useful tool for controlling inflation.
A: Aggregate demand is a useful tool for controlling inflation.

Q: What is the best explanation for the slope of the neoclassical zone of the aggregate supply curve?
- A small increase in aggregate demand when the economy is operating below its potential output will not have much effect on the price level.
- An increase in aggregate demand causes both real output and the price level to increase.
- A small an increase in aggregate demand when the economy is operating at potential output causes the price level to rise, with little or no effect on real output.
A: A small an increase in aggregate demand when the economy is operating at potential output causes the price level to rise, with little or no effect on real output.

Q: A small increase in output that causes a proportionately large increase in the price level indicates that the economy is operating ________.
- on the Keynesian zone of the aggregate supply curve.
- between the Keynesian and neoclassical zones of the aggregate supply curve.
- on the neoclassical zone of the aggregate supply curve.
A: on the neoclassical zone of the aggregate supply curve.

Q: The neoclassical model focuses more on long-term fluctuations caused by business cycles and also ________.
- short-term fluctuations caused by technological change and labor force growth
- immediate determinants like changes in hiring and firing.
- long-run determinants of output and employment
A: long-run determinants of output and employment

Q: The neoclassical model focuses more on long-run determinants of output and employment as well as
- immediate changes in the marketplace
- short-term fluctuations caused by technological change and labor force growth
- long term fluctuations caused by business cycles
A: long term fluctuations caused by business cycles

Q: Say’s Law states that supply creates its own demand. In the neoclassical zone on the graph above, supply is at its potential GDP, at full capacity. When aggregate supplies have reached their full potential output, what happens if demand shifts to the right?
- The aggregate supply outputs increase and LRAS shifts to the right.
- The aggregate demand prices decrease as AD shifts to the right.
- The aggregate demand prices increase as AD shifts to the right.
A: The aggregate demand prices increase as AD shifts to the right.

Q: If supply creates its own demand as Say’s Law states, then in the neoclassical zone on the graph above when supply is at its potential GDP, what happens if demand shifts to the right?
- The aggregate supply outputs increase and LRAS shifts to the right.
- The aggregate demand prices decrease as AD shifts to the right.
- The aggregate demand prices increase as AD shifts to the right.
A: The aggregate demand prices increase as AD shifts to the right.

Q: Consider the neoclassical zone in the graph above. Which of the following is a true statement about Say’s Law in the neoclassical zone?
- Movement of the AD curve to the right or to the left shifts the LRAS curve.
- Because equilibrium is close to or at potential GDP, unemployment is affected by shifts in the AD curve.
- Shifts of the AD curve have little to no effect on supply output because the LRAS at full output is creating demand.
A: Shifts of the AD curve have little to no effect on supply output because the LRAS at full output is creating demand.

Q: Which of the following is a true statement about Say’s Law in the neoclassical zone pictured in the above graph?
- The LRAS curve moves depending on whether the AD curve moves to the right or left.
- Unemployment is affected by shifts in the AD curve because the equilibrium point is close to or at potential GDP.
- Because the LRAS is at full output it is creating demand and shifts of the AD curve have little to no effect on supply output.
A: Because the LRAS is at full output it is creating demand and shifts of the AD curve have little to no effect on supply output.

Q: What is the best explanation for the slope of the Keynesian zone of the aggregate supply curve?
- An increase in aggregate demand causes both real output and the price level to increase.
- An increase in aggregate demand when the economy is operating at potential output causes the price level to rise, with little or no effect on real output.
- An increase in aggregate demand when the economy is operating below potential output causes real output to grow, with little or no effect on the price level.
A: An increase in aggregate demand when the economy is operating below potential output causes real output to grow, with little or no effect on the price level.

Q: The best explanation for the slope of the Keynesian zone of the aggregate supply curve is that an increase in aggregate demand
- causes both real output and the price level to increase.
- when the economy is operating at potential output causes the price level to rise, with little or no effect on real output.
- when the economy is operating below potential output causes real output to grow, with little or no effect on the price level.
A: when the economy is operating below potential output causes real output to grow, with little or no effect on the price level.

Q: The Keynesian model focuses more on short-term fluctuations caused by business cycles and the neoclassical model focuses more on ________.
- short-term fluctuations caused by technological change and labor force growth
- immediate determinants like changes in hiring and firing
- long-run determinants of output and employment
A: long-run determinants of output and employment

Q: The Keynesian model focuses more on ________ and the neoclassical model focuses more on long-run determinants of output and employment.
- immediate changes in the marketplace
- short-term fluctuations caused by technological change and labor force growth
- short-term fluctuations caused by business cycles
A: short-term fluctuations caused by business cycles

Q: What part of the graph above would you say an economy is operating in if the economy is in a recession, operating below its potential GDP, and where cyclical unemployment is high?
- Neoclassical zone
- Intermediate zone
- Keynesian zone
A: Keynesian zone

Q: If you are looking at an economy that is operating below its potential GDP, where cyclical unemployment is high, and it is in a recession, then which zone represents that in the graph above?
- Neoclassical zone
- Intermediate zone
- Keynesian zone
A: Keynesian zone

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

Q: In the Keynesian zone of the aggregate supply curve, how is Keynes’ law, where demand creates its own supply, illustrated?
- Because the economy is closer to full output, aggregate demand either increasing or decreasing has a large effect on prices and little effect on aggregate supply.
- Prices remain relatively static and outputs remain unchanged when aggregate demand decreases because the economy lacks excess capacity.
- Prices change relatively little with an increasing aggregate demand, but that changing demand does effectively increase aggregate outputs because of the excess capacity in the economy.
A: Prices change relatively little with an increasing aggregate demand, but that changing demand does effectively increase aggregate outputs because of the excess capacity in the economy.

Q: A key distinction between the Keynesian and neoclassical economists is that Keynesians believe the economy exhibits a ________ aggregate supply curve and neoclassicals believe it is ________.
- vertical; flat
- upward-sloping; downward-sloping
- flat; vertical
A: flat; vertical

Q: The Keynesian zone of the aggregate supply curve is ________ while the neoclassical portion is ________.
- vertical; flat
- upward-sloping; downward-sloping
- horizontal; vertical
A: horizontal; vertical

Q: What is the shape of the intermediate zone of the AD-AS curve?
- downward-sloping
- horizontal
- upward-sloping
A: upward-sloping

Q: The intermediate zone of the AD-AS curve is ________.
- downward-sloping
- horizontal
- upward-sloping
A: upward-sloping

Q: How does the intermediate zone of the AD-AS curve follow Say’s law when AD shifts to the right?
- SRAS is flatter and creates more supply by decreasing prices and output level.
- SRAS creates more demand by decreasing prices and output level.
- SRAS moves closer to potential GDP and increases price level.
A: SRAS moves closer to potential GDP and increases price level.

Q: When considering the intermediate zone of the AD-AS curve, if the AD curve moves to the right how does it follow Keynes’ law?
- SRAS is flatter and creates more supply by decreasing prices and output level.
- SRAS is more vertical, which is closer to potential GDP where mostly price is affected.
- AD shifted to the right influences supply creating increased output levels.
A: AD shifted to the right influences supply creating increased output levels.

Q: In the intermediate zone of an AD-AS graph with a AD curve that has shifted to the left, how is it following Keynes’ law?
- The AS curve slopes up more bringing it closer to potential GDP and more demand.
- The AS curve decreases output levels and increases demand.
- As AD moves left to a flatter AS curve it influences supply and decreases output levels.
A: As AD moves left to a flatter AS curve it influences supply and decreases output levels.

Q: Why does the AD curve moving left follow Say’s law when in the intermediate zone of the AD-AS graph?
- As AD moves left to a flatter AS curve it influences supply and decreases output levels.
- The AS curve is sloping up and closer to potential GDP.
- Higher unemployment levels (excess supply) and lower prices should cause demand to increase.
A: Higher unemployment levels (excess supply) and lower prices should cause demand to increase.

Q: Which model is known to do a good job explaining recessions and the rise and fall of cyclical employment?
- neoclassical
- supply-side
- Keynesian
A: Keynesian

Q: Recessions and the fluctuations in cyclical employment are best explained by the ________ model.
- neoclassical
- supply-side
- Keynesian
A: Keynesian

Q: Which model is known to do a good job explaining long-term economic growth?
- Keynesian
- supply-side
- neoclassical
A: neoclassical

Q: Long-term economic growth is best explained by the ________ model.
- Keynesian
- supply-side
- neoclassical
A: neoclassical

Q: Economists who hold to Keynesian views are most aptly described as ________ .
- supply-siders
- believers in perfect competition
- aggregate demand policy interventionists
A: aggregate demand policy interventionists

Q: Economists who hold to Neoclassical views are most aptly described as ________ .
- aggregate demand policy interventionists
- supply-siders
- believers in perfect competition
A: believers in perfect competition

Q: A weakness of the Keynesian economic view is that it:
- 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 short-term causes of economic growth or decline when the economy is stuck in a long-lasting recession.
- can overlook the long-term causes of economic growth like the existing natural rate of unemployment even when the economy is at potential GDP.
A: can overlook the long-term causes of economic growth like the existing natural rate of unemployment even when the economy is at potential GDP.

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