Chapter 20 Appendix—Policy Disputes Using the Self-Correcting Aggregate Demand and Supply ModelMULTIPLE CHOICE1.Classical theory advocates ____ policy and Keynesian theory advocates ____ policy.a.nonintervention; interventionb.active; nonstabilizationc.stabilization; fixed waged.fixed rule; passiveANS:APTS:1DIF:ETOP:Classical versus KeynesianTYP:RE2.Assuming the economy is experiencing a recessionary gap, classical economists predict that:a.wages will remain fixed.b.monetary policy will sell government securities.c.higher wages will shift the short-run aggregate supply curve leftward.d.lower wages will shift the short-run aggregate supply curve rightward.e.none of the above.ANS:DPTS:1DIF:MTOP:Classical versus KeynesianTYP:SA
3.Assume the economy is operating at a real GDP above full-employment real GDP. Keynesian economists would prescribe which of the following policies?
4.A policy to do nothing and allow the economy to self-correct or adjust without interference from the federal government is also called a(n) ____ policy:
5.Assume the economy is experiencing a recessionary gap. Keynesian economists would support which of the following policies:
6.Assume the economy is in short-run equilibrium at a real GDP below its potential real GDP. According to Keynesian theory, which of the following policies should be followed?a.The Federal Reserve should increase the money supply.b.The federal government should increase spending.c.The federal government should do nothing because the economy will self correct to