Question 1

The Classical model
A) is now discredited
B) was developed by John Maynard Keynes
C) has been completely displaced by the short-run macro model
D) helps us to understand the performance of the economy in the long run
E) is most useful in helping us to predict when an economic downturn will occur

Accepted Answer

The Classical model helps us to understand the performance of the economy in the long run, specifically in relation to factors such as capital accumulation, technological progress, and labor productivity. It is still widely used and accepted in modern macroeconomic analysis.

Question 2

Which economic phenomenon is the short-run macro model most useful in explaining?
A) The sources of employment in the long run
B) The trend of output in the long run
C) The sources of cyclical unemployment
D) The reasons why some workers become discouraged
E) The sources of long-run economic growth

Accepted Answer

The short-run macro model is most useful in explaining the sources of cyclical unemployment, which refers to the unemployment that fluctuates with the business cycle. The model focuses on the relationship between aggregate demand and aggregate supply, and how changes in these factors can impact the level of employment in the short run.

Question 3

One reason why economists often appear to disagree when asked about the impact of some bad economic news is that
A) they do not understand the economy very well
B) economics is a very difficult science,and so there are many incorrect economic projections being made
C) economists rarely disagree;people just think they are disagreeing because they do not understand the language of economics
D) economists often appear to be disagreeing when one is talking about long-run impact while the other is referring to short-run impacts
E) economists are by nature competitive individuals and they often disagree

Accepted Answer

Economists may appear to disagree when discussing the impact of bad economic news because one economist may be referring to the long-term impact while the other is discussing short-term impacts. This can result in seemingly conflicting views on the same issue.

Question 4

Which of the following is a definition of economic fluctuations?
A) Movements in prices around their long-run trend
B) Shifts in the long-run trend of output
C) Movements of the real wage over the long run
D) Shifts in the long-run trend of prices
E) Movements in output around its long-run trend

Accepted Answer

Economic fluctuations refer to the ups and downs in the level of economic activity or output over time, around its long-run trend. These fluctuations can be measured by changes in GDP, employment, and other economic indicators. Options A, B, C, and D are all related to long-run trends and shifts, whereas economic fluctuations refer to short-term changes.

Question 5

According to classical economics,
A) the economy moves to full employment in the long run
B) the economy is always at full employment in the short run
C) the economy is rarely at full employment
D) business cycles explain long-run fluctuations in the economy
E) the economy is at full employment in the short run,but in the long run,business cycle movements lead the economy away from full employment

Accepted Answer

According to classical economics, the economy moves towards full employment in the long run as wages and prices adjust to their equilibrium levels. This idea is based on the assumption of flexible wages and prices and the belief that markets will always adjust towards equilibrium.

Question 6

John Maynard Keynes and his followers argued that
A) the classical model does a good job of explaining the economy's operation in both the short run and long run
B) the short run is unimportant so economists should focus their attention on the long run
C) the economy should be allowed to function with minimal government interference
D) the economy operates the same way in both the short run and long run
E) while the classical model might explain economic performance in the long run,the long run could take a long time to reach

Accepted Answer

John Maynard Keynes and his followers argued that while the classical model might explain economic performance in the long run, the long run could take a long time to reach. They believed that in the short run, the economy could experience unemployment and other economic problems that needed to be addressed through government intervention.

Question 7

What major historical event led to the most significant challenge to classical economic thinking?
A) The war on poverty
B) The American Revolution
C) World War II
D) The Great Depression
E) The oil shocks of the 1970s

Accepted Answer

The Great Depression led to the most significant challenge to classical economic thinking. Classical economists believed in laissez-faire capitalism and that markets would naturally self-correct during economic downturns. However, the severity and length of the Great Depression demonstrated that the market could not always self-correct, leading to the development of Keynesian economics and government intervention in the economy.

Question 8

Classical economists believed that production could be stuck below its full employment level for a long period of time.

Accepted Answer

Classical economists believed that the economy was self-regulating and would tend towards full employment in the long run. They did not believe that production could remain stuck below its full employment level for a long period of time. This idea is more commonly associated with Keynesian economics.

Question 9

The classical model
A) is another name for the short-run macro model
B) was developed to explain the long period of poor economic performance during the Great Depression
C) is an attempt to explain why the economy tends to perform rather well over long periods of time
D) is believed by most economists to be a better explanatory model for short-term,rather than long-term,economic performance
E) was not really accepted as a legitimate economic theory until the 1950s

Accepted Answer

The classical model is an attempt to explain why the economy tends to perform rather well over long periods of time. It suggests that market forces, such as supply and demand, will eventually lead to full employment and economic growth. It contrasts with the short-run macro model, which focuses on the fluctuations in output and employment in the short term. While the classical model was developed long before the Great Depression, it was not fully accepted by economists until the 1950s.

Question 10

Which of the following is true for a market that clears?
A) An excess supply of anything traded will lead to a fall in its price.
B) An excess demand of anything traded will lead to a fall in its price.
C) An excess supply of anything traded will lead to a rise in its price.
D) An excess demand of anything traded will not lead to a price change.
E) A high price will lead to a high demand.

Accepted Answer

If there is an excess supply of a product in a market that clears, it means that the quantity supplied is greater than the quantity demanded. In such a situation, sellers will try to lower the price in order to attract more buyers and clear the excess supply. Hence, the price of the product will fall.

Question 11

Which of the following is more of a short-run than a long-run goal?
A) Increasing the capital stock
B) Encouraging investment in human capital
C) Moderating economic fluctuations
D) Stimulating economic growth
E) Increasing private investment

Accepted Answer

Moderating economic fluctuations is more of a short-run goal as it focuses on stabilizing the economy in the short term by minimizing fluctuations in output, employment, and inflation. This is typically achieved through the use of monetary and fiscal policies. In the long run, the goal is to encourage sustainable economic growth and development, which would lead to a more stable economy.

Question 12

Which of the following events triggered intense debate over the classical model of the economy?
A) The U.S.Civil War
B) World War I
C) the Baby Boom
D) The Great Depression
E) World War II

Accepted Answer

The Great Depression triggered intense debate over the classical model of the economy as it defied the classical theory of markets self-correcting and provoked Keynes to propose his own theory of macroeconomics, which challenged classical assumptions.

Question 13

Which of the following real-world phenomena does the classical model ignore?
A) Frictional unemployment
B) Inflation
C) Real output growth
D) Cyclical unemployment
E) Structural unemployment

Accepted Answer

The answer of Which of the following real-world phenomena does...

Question 14

Which of the following statements about modern macroeconomic theory is most accurate?
A) Keynes' ideas help us understand movements in output around its long-run trend,while the Classical model is more useful in explaining the long-run trend itself.
B) The classical model helps us understand movements in output around its long-run trend,while the short-run macro model is more useful in explaining the long-run trend itself.
C) Both classical and short-run macro models help us understand movements in output around its long-run trend,but neither model is effective at explaining the long-run trend itself.
D) Neither the classical nor the short-run macro model helps us understand movements in output around its long-run trend,but both are useful in explaining the long-run trend itself.
E) Only the short-run macro model is useful in understanding movements in output around its long-run trend,and in explaining the long-run trend itself.

Accepted Answer

Modern macroeconomic theory recognizes that both the Classical and Keynesian (short-run macro) models are useful in understanding movements in output around its long-run trend. However, Keynes' ideas are particularly helpful in explaining short-run fluctuations in output, while the Classical model is more useful in explaining the long-run trend itself.

Question 15

A key assumption of the classical model is that
A) government intervention is important to get markets to clear
B) prices adjust until quantity supplied equals quantity demanded
C) markets never clear in the long run
D) demand adjusts in order to meet supply
E) prices remain constant and supply and demand adjust

Accepted Answer

The key assumption of the classical model is that prices adjust until quantity supplied equals quantity demanded, which is also known as market equilibrium. This assumption forms the basis for the classical theory of supply and demand, which states that the forces of supply and demand will eventually lead to a market equilibrium in which there is no excess supply or demand. This assumption also implies that government intervention is not necessary to get markets to clear, as markets will naturally adjust to eliminate any imbalances between supply and demand.

Question 16

What key observation did the classical model attempt to explain?
A) the economy performs well in the short run,but not so well in the long run
B) business cycles are the most important economic problem
C) over the short run,the economy performs rather poorly
D) markets do not clear without government intervention
E) over the long run,the economy performs rather well

Accepted Answer

The classical model attempted to explain the observation that over the long run, the economy performs rather well.

Question 17

According to Keynesian economists,
A) the economy will return quickly to full employment in most cases
B) if output is below its potential,the economy will soon return to full employment
C) production can be stuck below its full-employment level for extended periods of time
D) the Great Depression proved that classical economics does a good job of explaining how the economy operates
E) he economy will achieve full employment in the short run but,in the long run,GDP will fluctuate

Accepted Answer

Keynesian economists believe that in situations where the economy is below its potential level of output, it can remain stuck at that level for extended periods of time due to factors such as insufficient demand and high levels of unemployment. This is in contrast to classical economics, which suggests that markets will self-correct and return the economy to full employment in the long run. The Great Depression was an example of a situation where classical economics did not adequately explain the prolonged economic downturn.

Question 18

The short-run macro model
A) is an attempt to explain why the economy tends to perform better in the short run than in the long run
B) was developed during the Great Depression to explain the economy's continuing poor performance
C) lost its popularity during the 1950s
D) was developed during the early 19th century
E) explains the forces that work to drive the economy to full employment

Accepted Answer

The answer of The short-run macro model
A) is an attempt...

Question 19

A critical assumption in the classical model is that markets are always clear.

Accepted Answer

The answer of A critical assumption in the classical model...

Question 20

A critical assumption in the classical model is that
A) markets are perfectly competitive in the short run
B) markets clear in the long run
C) markets clear in the short run
D) markets are perfectly competitive in the long run
E) all variables are expressed in nominal terms

Accepted Answer

The answer of A critical assumption in the classical model...

Quiz 20: The Classical Long-Run Model

The Classical model

Which economic phenomenon is the short-run macro model most useful in explaining?

One reason why economists often appear to disagree when asked about the impact of some bad economic news is that

Which of the following is a definition of economic fluctuations?

According to classical economics,

John Maynard Keynes and his followers argued that

What major historical event led to the most significant challenge to classical economic thinking?

Classical economists believed that production could be stuck below its full employment level for a long period of time.

The classical model

Which of the following is true for a market that clears?

Which of the following is more of a short-run than a long-run goal?

Which of the following events triggered intense debate over the classical model of the economy?

Which of the following real-world phenomena does the classical model ignore?

Which of the following statements about modern macroeconomic theory is most accurate?

A key assumption of the classical model is that

What key observation did the classical model attempt to explain?

According to Keynesian economists,

The short-run macro model

A critical assumption in the classical model is that markets are always clear.

A critical assumption in the classical model is that