Economic Schools of Thought

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What is the primary factor that determines household savings and investments according to Keynesian economists?

Prevailing interest rates

Expected profitability of commercial capital investments

Disposable incomes and the desire to save for the future (correct)

Government fiscal policies

What is the term used to describe the state of the economy where there is a gap between the actual and potential levels of output?

Aggregate demand equilibrium

Under-employment equilibrium (correct)

Full-employment equilibrium

Monetary policy equilibrium

What is the primary focus of Keynesian economics in terms of time period?

Both long run and short run

Long run

Medium run

Short run (correct)

What is the primary tool used by Keynesian economists to close the gap between the actual and potential levels of output?

Both fiscal and monetary policy Signup and view all the answers

What is the name of the school of macroeconomic thought that asserts that changes in aggregate demand can create gaps between the actual and potential levels of output?

Keynesian school Signup and view all the answers

What is the primary reason why Keynesian economists believe that the government can play a role in stabilizing the economy?

Because aggregate demand can create gaps between the actual and potential levels of output Signup and view all the answers

What is the primary concern of monetarist authorities according to the theory?

Maintaining price stability Signup and view all the answers

Who is credited with making the first solid empirical case for the monetarist interpretation of business fluctuations?

Clark Warburton Signup and view all the answers

What is the monetarist view on the relationship between money supply and inflation?

Excessive money supply will lead to inflation Signup and view all the answers

According to New Classical Economists, what happens when markets clear?

Markets clear instantaneously Signup and view all the answers

What is the assumption of New Classical Economists regarding the behavior of agents in the market?

Agents have rational expectations and optimize rationally Signup and view all the answers

What is the implication of the neutrality of money according to New Classical Economists?

Workers will adjust their wage contracts and firms will adjust their goods prices ahead of time Signup and view all the answers

What can occur if governments do not announce an increase in the money supply?

Agents realize it later and adjust their wages and prices Signup and view all the answers

Which of the following is NOT a characteristic of New Keynesians?

Markets clear instantaneously Signup and view all the answers

What does the New Keynesian school recommend for governments to do?

All of the above Signup and view all the answers

Which economists are associated with the New Keynesian school?

Joseph Stiglitz, Edmund Phelps, Gregory Mankiw, Olivier Blanchard, David Romer Signup and view all the answers

What do all the schools of economics mentioned have in common?

A belief in the positive nature of competition Signup and view all the answers

What is a common goal of the schools of economics mentioned?

Strengthening property rights and enforcing contracts Signup and view all the answers

What do Market Clearing Classicists, New Classicists, and Monetarists believe about the market clearing process?

It occurs rapidly at equilibrium levels due to flexible prices Signup and view all the answers

Which school of thought believes that monetary policy is ineffective or worsens the business cycle?

Classicist, New Classicist, and Monetarist Signup and view all the answers

What is a characteristic of the Keynesian and New Keynesian schools of thought?

Belief in sticky prices and slow equilibrium forces Signup and view all the answers

What did Colander say about modern economists?

They are neither classical nor Keynesian, but New Millennium Economists Signup and view all the answers

Which school of thought is currently dominant in academia?

New Classicist Signup and view all the answers

What was Jevons' approach towards the classical school?

Try to differentiate himself from it Signup and view all the answers

What was Keynes' approach towards the classical and neoclassical schools?

He lumped them together, calling them all Classical Signup and view all the answers

Economic Schools of Thought

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