Question

PART 1a: In the fixed-price Keynesian model, wages may be sticky due to institutional constraints such as minimum wage laws or union contracts. True or false

PART 1b: Assume a model with a downward-sloping aggregate demand curve and an upward-sloping aggregate supply curve.  In this model, a decrease in aggregate supply will lead to an increase in real GDP and a decrease in the price level. True or false.

Part 2a.

In the Keynesian monetary policy transmission mechanism,

	a.	the money supply curve is vertical.
	b.	the money demand curve is horizontal.
	c.	the investment function is upward-sloping.
	d.	the money supply curve is horizontal.
	e.	the money demand curve is vertical.

Part 2b:

One difference between the classical and Keynesian models of aggregate demand is that

	a.	in the classical model, the aggregate demand curve is vertical.
	b.	in the Keynesian model, aggregate demand only changes with changes in the money supply.
	c.	in the Keynesian model, the aggregate demand curve is horizontal.
	d.	In the classical model, an increase in consumption spending leads to an increase in aggregate demand.
	e.	In the Keynesian model, any factor that leads to a change in aggregate expenditures (except for a change in the price level) will also lead to a change in aggregate demand.

Part 2c.

Which of the following statements is false?

	a.	The discount rate is the rate that banks charge each other for loans from their Federal Reserve accounts.
	b.	The tools of monetary policy include open market operations, the discount rate, and reserve requirements.
	c.	The Federal Open Market Committee consists of the seven Governors, the New York Fed president, and four other rotating presidents.
	d.	The Federal Reserve System consists of 12 regional Federal Reserve Banks spread out around the country to avoid the concentration of economic and political power.
	e.	The Governors of the Federal Reserve System have staggered, 14-year terms to provide political insulation from the president.

Answer 1

In the fixed-price Keynesian model, wages may be sticky due to institutional constraints such as minimum wage laws or union contracts. True
It is because of this price stickiness that government can intervene to stablize the market.

Assume a model with a downward-sloping aggregate demand curve and an upward-sloping aggregate supply curve.  In this model, a decrease in aggregate supply will lead to an increase in real GDP and a decrease in the price level. False
The price level wil rise and the output level will fall.

Please post other questions separately.