Why is persistent unemployment a possibility in the Keynesian model but NOT in the classical model?
A) The Keynesian model assumes that people work for motives other than those of earning an income for themselves and supporting a family.
B) The Keynesian model assumes that workers can lose their jobs to foreign competition during economic downturns.
C) The Keynesian model assumes that the level of real GDP is inflexible.
D) The Keynesian model assumes that nominal wages are inflexible downward.
D
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Supply-side economists argue that changes in tax rates cause changes in
A) labor supply. B) the full-employment level of output. C) saving. D) all of the above.
According to Tobin's q theory, when equity prices are low the market price of existing capital is ________ relative to new capital, so expenditure on fixed investment is ________
A) cheap; low B) dear; low C) cheap; high D) dear; high
The interest rate falls when either the demand for bonds ________ or the supply of bonds ________
A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases
Efficiency wages are ________
A) market clearing wages B) wages that are above the market-clearing level C) equal to the real wage rate minus the nominal wage rate D) equal to the nominal wage rate divided by some measure of the general price level