Question

Both monetarists and Keynesians would agree that aggregate supply can be treated as vertical:

1 when aggregate demand shifts to the left

2 when the price level is constant

3 when we are at full employment

4 in the very short run

The Austrian school of thought believes that demand management policy should not be used because:

1 shifting AD to the right is likely to cause a falling price level.

2 big government prefers deregulation policies, which shift aggregate supply right.

3 big government has a bias towards inflationary policy.

4 the economy is always at full employment.

If you are trying to forecast a coming recession, which of the following would be the least helpful?

1 Federal Reserve Bank of New York’s Nowcasts

2 The Conference Board’s index of Coincident Economic Indicators

3 The Conference Board’s index of Leading Economic Indicators

4 Yield spread (long-term minus short-term interest rates)

Answer 1

Both monetarists and Keynesians would agree that aggregate supply can be treated as vertical:

3. when we are at full employment.

Explanation:

Monetarists suggest that economy is always at full employment level and there is no involuntary unemployment. In Classical framework prices are flexible but as economy is at its full employment level aggreegate supply curve is vertical.Keynesians suggest that in the long run economy is close to its full capacity of output and employment. Thus in the keynesian framework supply curve is vertical in the long run.