Question

Please do it by type not pic

1.The macroeconomic starting point for the original Keynesian school of thought:

a.at a point greater than potential GDP.

b.rigorously anchored at potential GDP.

c.at a real interest rate of zero.

d.not clearly defined and assumed to be at a point less than potential GDP.

2.Okun's Law states that for every two percent that actual GDP is above potential GDP, the actual rate of unemployment is_____ percent _______ the natural rate of unemployment.

a.two, equals

b.one, below

c.one, above

d.two, above

3.In the circular flow model, leakages from the income stream:

a.savings, taxes, and imports.

b.interest payments.

c.transfer payments.

d.investment, government spending, and exports.

4.Classical economists tended to focus on ________ factors and Keynesian economists tend to focus on _________ factors in their macro models:

a.supply side, supply side

b.demand side, demand side

c.demand side, supply side

d.supply side, demand side

5.The real business cycle theory:

a.is true for all of these answers.

b.denies a role of the FED in macroeconomic stabilization.

c.focuses on productivity shocks to the economy.

d.is a supply side school of thought.

e.denies demand side effects on the macro-economy.

6.The Great Recession (2007 to 2009) changed the nature and direction of the macroeconomic debate because:

a.the financial crisis threatened to collapse the entire economy, an outcome not predicted by classical models.

b.the prior direction of the macroeconomic debate was on the New Classical and Real Business Cycle models.

c.the technology boom of the 1990s seemed to validate the Real Business Cycle model.

d.of all of the answers in this question.

e.the recession seemed to resemble an old-fashion Keynesian demand shock.

Answer 1

1) The theories presented by Keynes was first formed during the Great Depression . So during the Great Depression economic output was much below potential output . Answer : d.not clearly defined and assumed to be at a point less than potential GDP.

2) Answer : b.one, below . For every 2% increase in real GDP there will be 1% decline in unemployment .

3) Leakage means withdrawal from the flow . When households and firms save part of their incomes it constitutes leakage. They may be in form of savings, tax payments, and imports. Leakages reduce the flow of income . Answer : a.savings, taxes, and imports.

4) d.supply side, demand side . Keynesian gave importance to aggregate demand while Classicals said that supply creates its own demand .