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In: Economics

Question 41 pts Which of the following is true under both the Keynesian and Classical models?...

Question 41 pts

Which of the following is true under both the Keynesian and Classical models?

Monetary policy doesn’t accomplish much at stabilizing the economy.
A fall in AD decreases production and jobs not wages and prices.
When GDP rises the velocity of money rises.
all of the above.

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Question 51 pts

The Keynesians claim that:

the velocity of money moves with real GDP and the money supply.
the velocity of money moves against real GDP and with the money supply.
the velocity of money moves with real GDP and against the money supply.
the velocity of money moves against real GDP and the money supply.

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Question 61 pts

Wages and prices are probably sticky in the short-run because of

menu costs
implicit agreements
contracts
all of the above

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Question 71 pts

According to Keynes, the most important factor causing the business cycle is the level of wages.

True
False

Solutions

Expert Solution


1. All of the above

Both the Keynesian and the Classical model believe that monetary polices does not emphasize of stabilising economy, a fall in aggregate demand and jobs not wages and prices and when GDP rises the velocity of money rises.


2. the velocity of money moves against real GDP and with the money supply.

As per Keynes, the velocity of money is dependent on the nominal GDP and the
money supply which means it moves against real GDP

3. Contracts

There are contracts fixed between the workers and the firms whcih makes it sticky as some amount of wages are pre decided at the time of negotiating.


4. True

According the Keynesian theory if there is high employment then workers can demand for more wages and if the unemployment level is high then the level of wages will go down. Therefore, the most important factor causing the business cycle is the level of wages, which will fluctuate and cause the business cycle and affect it.


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