Question

1. The Keynesian school assumes that aggregate supply is plentiful and thus passive in their model.

   True

   False

2. The classical school assumes that since wants and desires are unlimited, aggregate demand is plentiful and thus passive.

   True

   False

3. In the macro analysis presented in your textbook, there is a clear distinction between long-run growth and short-run fluctuations. Thus we have two models: 1) long-run model and 2) short-run model.

   True

   False

4. If prices and wages were perfectly flexible, there would be no change in output -- in either the case of an increase in aggregate demand or a decrease in aggregate demand.

   True

   False

5. If you are on the negative slope of the Laffer curve and you increase tax rates, tax revenues will rise.

   True

   False

6. If the FED increases the money supply and lowers interest rates, the short-run aggregate supply shifts right.

   True

   False

Answer 1

1.Aggregate supply is not plentiful but rather fluctuates in Keynesian model. It will lead to change in price level will the maximum value of wage and interest rate are not achieved. So, in short term it is different from Classical AS curve which assumes a vertical fixed shape while here it takes a curved shapre until long range scenario is not achieved. So, Answer is False.

2. Aggregate Demand is not passive in Classical model. It can increase and decrease and is the only factor that leads to price change. So, Answer is False.

3. Long and Short Run AS curve are different in Keynesian view where the curve will follow a curve path will Keynesian space and will converge with Long run curve .So Answer is True.

4. Output will continue to increase until highest wage and interest levels are achieved. So, False