Compare and contrast the classical and Keynesian schools of thought for the following economic issues. (a) The flexibility of wages and prices. (b) The importance of macroeconomic policies
What will be an ideal response?
(a) The flexibility of wages and prices is a principal point of disagreement between classical economists and Keynesians. Classical economists believe that wages and prices are quite flexible; in response to a change in market conditions, wages and prices adjust quickly to their new market-clearing levels. Keynesians believe that wages and prices are rigid or sticky; in response to changes in the economy, wages and prices adjust slowly to their new market-clearing levels.
(b) Classicals and Keynesians also disagree about the use of macroeconomic policies. Given wage-price flexibility, classical economists believe that the market economy normally provides for full employment. They believe that government intervention in the form of macroeconomic fiscal and monetary policies is not needed to prevent recessions. Given slow adjustments in wages and prices, Keynesians believe that recessions could plague the economy for several years. They believe that efficient use of macroeconomic policies could return the economy to equilibrium more quickly.
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Brand names are an example of
A) economies of scale. B) product differentiation. C) oligopoly. D) illegal barriers to entry.
The present value of a sum to be received in the future is greater
A) the greater the interest rate. B) the less the time period before receiving the sum. C) the greater the inflation rate. D) the greater the discount rate.
When a tariff is? imposed, the supply curve for the imported good
A) shifts downward and to the right.
B) shifts upward and to the left.
C) does not change.
D) becomes perfectly inelastic.
Oil wells and seasonal resorts will often shut down temporarily because:
A. prices for their output temporarily fall below their average variable costs of production. B. fixed costs temporarily rise, making production unprofitable. C. variable costs for pumping oil and operating resorts fluctuate significantly. D. government regulations require seasonal shutdowns for maintenance purposes.