Disputes In Macro Theory

Question 1

What are the main views of classical theorists?

Answer 1

The economy is self correcting and there are downward flexible wages and prices

Question 2

What are the views of monetarists?

Answer 2

They focus on money supply, they believe the market is highly competitive, and that competition gives the market stability

Question 3

What are the beliefs of classical theorists on wages and prices?

Answer 3

They are downward flexible

Question 4

What do classical theorists believe about gov intervention in the economy??

Answer 4

They believe in laissez afire economics

Question 5

What do classical theorists believe is the problem with the economy?

Answer 5

Government intervention using discretionary fiscal policy

Question 6

What is the policy rule?

Answer 6

It prevents the government from managing AD

Question 7

What is this the monetary rule?

Answer 7

The FED expands the money supply at a fixed rate each year

Question 8

What do classical theorists believe about a balanced budget?

Answer 8

Pro-balanced budget

Question 9

Who supports the monetary and policy rule?

Answer 9

Classical theorists

Question 10

Classics theorists believe that if wages aren’t downward flexible it’s the governemnt’sfault because of?

Answer 10

Minimum wage laws, pro Union legislation, pro monopoly legislation, discretionary fiscal policy, and social programs

Question 11

In a classical theory graph AS is

Answer 11

Vertically sloped

Question 12

In a classical theory graph AD is not

Answer 12

Downward sloping

Question 13

In classical theory a decrease is AD doesn’t change output only changes

Answer 13

Price level

Question 14

What are the main beliefs in Keynesian theory?

Answer 14

The economy isn’t self correcting and the economy can get stuck in period of underspending indefinitely

Question 15

What do Keynesian theorists believe can fix the economy?

Answer 15

The givenerment using fiscal and monetary policy

Question 16

What do Keynesian theorists believe about prices and wages?

Answer 16

They are downward inflexible

Question 17

What do Keynesianism believe cause economic instability ?

Answer 17

Changes in investment spending and supply shocks

Question 18

Are Keynesian theorists for or against the policy and monetary rule?

Answer 18

Against

Question 19

Are Keynesianism for or against a balanced budget?

Answer 19

Against

Question 20

In a Keynesian theory graph AS is

Answer 20

Horizontal up to a point and then it’s vertical

Question 21

In a Keynesian graph AD

Answer 21

Is down sloping

Question 22

In Keynesian theory a decrease in AD causes no change in price level, and

Answer 22

A decrease I output

Question 23

For classical viewers what caused instability of AD?

Answer 23

Wars, droughts, panics, and gold rushes

Question 24

According to Keynesian viewers instability comes with changes in Investment spending which causes

Answer 24

Demand pull inflation

Question 25

According to Keynesian viewers changes in the money supply cause instability which causes

Answer 25

Cost push inflation

Question 26

Keynesian view is also called?

Answer 26

Mainstream view

Question 27

What is the equation of exchange?

Answer 27

MV=PQ

Question 28

What does MV mean?

Answer 28

The nations money supply times the # of times spent

Question 29

What is PQ?

Answer 29

Nominal GDP

Question 30

MV represents the

Answer 30

Total amount spent

Question 31

PQ represents the

Answer 31

Total amount received by sellers

Question 32

What is M?

Answer 32

The supply of money

Question 33

What is V?

Answer 33

Velocity; the # of times the average dollar is spent in a year

Question 34

What is Q?

Answer 34

The amount of g/s purchased

Question 35

What is P?

Answer 35

Price level

Question 36

What does the equation do exchange mean?

Answer 36

The dollar value of total spending must equal the dollar value of total output

Question 37

What do rational expectation theorists believe?

Answer 37

Unanticipated PL changes cause changes in GDP in the short run but not the long run, and that people anticipated PL changes and act appropriately so no real change in GDP occurs

Question 38

What do Keynesian theorists believe about downward inflexible wages?

Answer 38

They a re caused by wage contracts and minimum wages laws; firms don't want to lower wages and risk low morale or losing skilled workers

Question 39

What doe Keynesian theorists believe about efficient wage theory?

Answer 39

The Benefits of paying higher wages ar greater work effort, lower supervision costs, and reduced loss of skilled workers

Question 40

What do Keynesian theorists believe about insider-outsider relationships?

Answer 40

They keep wages up

Question 41

What is an insider outsider relationship?

Answer 41

Insiders=those who are contracted and won't lose job | Outsiders= those who lose job during times of recession

Question 42

What are the two assumptions of rational expectation theory?

Answer 42

People have adequate info to predict outcomes and behave rationally; and the economy is competitive, and prices and wages are flexible both up and down

Question 43

What does the real business cycle suggest?

Answer 43

Macro instability is caused by real factors that affect AS; and that business fluctuations result from significant changes in technology and resource availability

Question 44

What do Keynesians think of the private economy?

Answer 44

It is potentially unstable

Question 45

What do Keynesians believe cause instability?

Answer 45

Changes in AD and AS shocks

Question 46

What do Keynesians believe is appropriate macro policy?

Answer 46

Fiscal and monetary policy

Question 47

What do Keynesians believe about the velocity of money?

Answer 47

It is unstable

Question 48

What do monetarists believe about the private economy?

Answer 48

It is stable in the long run at Qf

Question 49

What do monetarists believe about the cause of instability?

Answer 49

Inappropriate monetary policy

Question 50

What do monetarists believe is appropriate macro policy?

Answer 50

Monetary rule

Question 51

What do monetarists believe about the velocity of money?

Answer 51

It is stable

Question 52

What do RETs believe about the private economy?

Answer 52

It is stable in the long run at Qf

Question 53

What do RETs believe is the cause of instability?

Answer 53

Unanticipated AD and AS shocks in the short run

Question 54

What do RETs think is appropriate macro policy?

Answer 54

Monetary rule

Question 55

What do supply siders think about the private economy?

Answer 55

It may stagnate without work, savings, and investment incentives

Question 56

What do supply siders think is the cause of instability?

Answer 56

Changes is AS

Question 57

What do supply siders view as appropriate macro policy?

Answer 57

Policy to increase AS

Question 58

Who are supporters of classical theory?

Answer 58

Monetarists, Rational Expectation Theorists, and Supply riders