Question

Question 21 pts

Criticisms of the simple Keynesian model include that it:

is too long run in its approach.

treats wages and prices as stickier than they really are.

treats the velocity of money as far more stable than it really is.

all of the above.

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Question 31 pts

The economy is more prone to rise above FE and for longer than to fall below it.

True

False

Answer 1

i) The Keynsian theory states that wages and prices do not respond quickly with the change in demand and supply position in an economy, which has been criticised by several other economists. Therefore, correct answer is Criticism of simple Keynsian model is that it:

Treats wages and prices as stickier than they really are.

ii) Every government in an economy want to attain "Full Employment" state though it often happens when an economy attains full employment state. Even when an economy achieves full employment, there exists some unemployment, In the short run though economy may enter the "Full employment" mode where there are excess job opportunities than the number of job seekers. However there are certain factors such wage and salary levels, consumer price index of a region etc. that determine employment growth in an economy.

Therefore, the given statement is False.