Question

A weakness of the Keynesian economic view is that it:

Select one:

a. focuses on the long-term factors for economic growth and not the short-term causes of economic growth such as why unemployment fluctuates up and down over a few years.

b. can overlook the long-term causes of economic growth like the existing natural rate of unemployment even when the economy is at potential GDP.

c. can overlook the short-term causes of economic growth or decline when the economy is stuck in a long-lasting recession.

d. does not consider the COLA.

Last year Canada’s economy had a surge in exports and increased demand for additional economic outputs. Because of the great demand, industry’s now have a labor shortage and wages have begun to rise. If you are looking at Canada’s macroeconomy through the lense of a neoclassical economic understanding, what you will expect to see over time?

Select one:

a. The GDP deflator will start moving.

b. Wages and prices will rise in the short-term, and over the long-term they will be flexible and move to a higher equilibrium price along the vertical AS curve (potential GDP).

c. Wages will rise rapidly and with the increase in demand the outputs will operate above potential GDP for both the short and long term for the economy.

d. Wages will be sticky and rise slowly, prices will rise rapidly and the vertical AS curve (potential GDP) will not shift to the right over the long-term.

What are the main ways in which government influences aggregate demand?

Select one:

a. increase or decrease the size of the military; lower or raise export production

b. increase or decrease interest rates; lower or raise tariffs

c. increase or decrease in output; lower or raise imports

d. increase or decrease spending; lower or raise tax rates

Assume the government has a budget deficit and that the economy is experiencing a recession. Tax revenues collected by the government is likely to ________, which would ________ the budget deficit.

Select one:

a. increase; decrease

b. decrease; increase

c. decrease; decrease

d. increase; increase

Say’s Law:

Select one:

a. is a central belief of Keynesian economists.

b. states demand creates its own supply.

c. is the reasoning behind debt instruments.

d. is widely held to be more accurate in the long run rather than the short term.

Answer 1

1 (B) can overlook the long-term causes of economic growth like the existing natural rate of unemployment even when the economy is at potential GDP.

reason Keynesian model has a weakness in which it ignores the elements of natural rate of unemployment even when the economy is at potential GDP. but some sort of unemployment is already exist.

2. b. Wages and prices will rise in the short-term, and over the long-term they will be flexible and move to a higher equilibrium price along the vertical AS curve (potential GDP).

reason in the neoclassical model wage and price rise sharply in the short run as the labor is not elastic so wages increases sharply , but over the period time it become flexible and move to a higher equilibrium price regarding wages it means that rise in supply of wage at higher price comes near to the vertical AS curve.

3. d. increase or decrease spending; lower or raise tax rates

reason government have instruments in fiscal policy to affect the aggregate demand in which government spending and taxation may increase and decrease the aggregate demand.

4. b. decrease; increase

when the government has a budget deficit and that the economy is experiencing a recession. Tax revenues collected by the government is likely to decrease as the government will meet the budget deficit by transferring the revenue to budget deficit to overcome the situation of recession.  so less tax revenue will remain but it would not be suffice and budget deficit will likely to increase.

5.(D)  is widely held to be more accurate in the long run rather than the short term

according to J.B. say low supply creates its own demand .  Say’s law with its emphasis on macroeconomic supply and macroeconomics deal with long run so say's law will be helpful in long run then short run