Compare the policy prescriptions of Keynesian, Classical, and Monetarist economists
What will be an ideal response?
Keynesians believe that without assistance the economy would almost never be at full employment. They prescribe activist fiscal and monetary policy to drive the economy to full employment. Classical economists believe the economy is self-regulating and will always tend towards full employment. Their main policy initiatives center on removing tax created disincentives for growth. Monetarists call for low taxes and consistent money growth because Monetarists believe that recessions are the result of fluctuations in the quantity of money.
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In the dominant firm model, the fringe firms
A) are price takers. B) maximize profit by equating average revenue and average cost. C) determine their price and output before the dominant firm determines its price and output. D) all of the above E) none of the above
The cyclically adjusted deficit as a percentage of GDP is 2 percent in year 1. This deficit becomes 1 percent of GDP in year 2. It can be concluded from year 1 to year 2 that:
A. fiscal policy was expansionary. B. the federal government is increasing spending. C. the federal government is decreasing taxes. D. fiscal policy was contractionary.
Higher nominal interest rates ________ the amount of money demanded and a higher price level ________ the amount of money demanded.
A. increase; decreases B. increase; increases C. decrease; decreases D. decrease; increases
If the actual reserve/deposit ratio equals 8% and the desired reserve/deposit ratio for this bank is 10%, the bank should:
A. send the extra reserves to the central bank. B. stop making loans. C. make more loans in order to earn interest. D. do nothing because this is a profitable situation.