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Chapter 26APolicy Disputes Using the Self-Correcting Aggregate Demand and Supply1. Classical theory advocates __________ policy and Keynesian theory advocates __________ policy. a. nonintervention; intervention.b. active; nonstabilization.c. fixed wages; flexible wages.d. active; passive.ANSa. Correct. Classical theory argues that the economy self corrects and Keynesians argue that the government should influence aggregate demand.b. Incorrect. Classical theory advocates a passive role for government and Keynesian theory is based on active government stabilization.c. Incorrect. Classical theory is based on flexible wages and Keynesian theory is based onfixed wages.d. Incorrect. Classical theory is based on a passive role for the government and Keynesiantheory is based on an active role.2. If the economy is in short-run disequilibrium, an economist following classical theory would advocate that the Federal Reserve make appropriate changes in the3. Assuming the economy is experiencing a recessionary gap, classical economists predict that1
ANS4. Assume the economy is operating at a real GDP above full-employment real GDP. Keynesian economists would prescribe which of the following policies?