Question

Which school of macroeconomic thought said that financial variables cannot affect the real side of the economy?
  
               Classical          Keynesian          Monetarist


2. According to the Classical model, what happens when there is a recessionary GDP gap? (check all that apply)
     
          The economy self-adjusts back to potential GDP
          The economy stays in recession unless the government acts to increase aggregate demand
          An excess supply of labor causes wage rates to fall
          The price level rises
          An excess demand for labor causes wage rates to rise

Answer 1

1) Classical (this is the idea behind classical dichotomy - real variables are independent of financial variables)

2) Correct options:

          The economy self-adjusts back to potential GDP
  
          An excess supply of labor causes wage rates to fall

(In a recessionary gap, there would be unemployment and excess labour supply would cause wage rates to fall, this would shift aggregate supply curve to the right as production costs fall and economy self adjusts back to potential GDP)