Econ434MC12A - Topic 12: Neoclassical and Related...

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Topic 12: Neoclassical and Related Macroeconomics 1. Events that prominent economic thinkers have suggested as causes of business cycles do NOT include how humans adjust to variations across time in: (a) rates of technological progress implemented by entrepreneurs. (b) sunspot activity. (c) environmental and technological constraints on population growth. (d) comparative advantages between trading nations. (e) international relations and wars. (f) the distributions of income and wealth. (g) self-interested behavior relative to collective security and nationalism. 2. Economic theories that stress coping with scarcity from the supply side and which support market solutions to problems and laissez-faire government policies include: ( a) neoclassical macroeconomic theory. (b) Keynesian macroeconomic theory. (c) institutionalism. (d) historicism. (e) rational voter apathy theory. 3. Neoclassical macroeconomic theory does not rely on an assumption that: (a) “supply creates its own demand,” per Say’s law. (b) nominal prices, wages, and interest rates are all perfectly flexible. (c) the quantity theory of money is valid so that money is neutral in the long run. (d) production possibilities frontiers are “bowed-out” from below. (e) powerful competitive forces quickly eliminate excess demands and excess supplies in all markets. 4. “Classical liberals” of the 19 th century were most likely to believe that: (a) gold is the ultimate source of wealth and should be acquired via a “favorable balance of trade.” (b) activist government policymaking creates inefficiency, inequity, and instability. (d) most practical economic theories were developed by French philosophers. (c) market globalization harms low- skilled workers. (e) momentum in psychological factors exacerbates business cycles. 5. The economic theory most supportive of a Panglossian view that “we live in the best of all possible worlds” (from Voltaire’s Candide ) is: (a) early classical macroeconomics. (b) Gandhi’s “small is beautiful” theory. (c) institutionalism. (d) neoclassical economics. (e) Keynesian macroeconomics. 6. The basic economic problem is scarcity. Consequently, the act of supplying goods by making resources available is conclusive evidence that demand will be adequate to ensure that markets will clear. This chain of reasoning is summarized in: (a) François Quesnay’s Tableau Economique . (b) the “Law of Markets” asserted by Jean Baptiste Say. (c) Richard Cantillon’s Essai Sur la Nature du Commerce en Général. (d) Ayn Rand’s Atlas Shrugged . (e) Herbert Spencer’s Social Statics and the Foundations of Consumption . 7. Among other noteworthy accomplishments, Knut Wicksell [Sweden, 1851-1926]: (a) showed that, in a unanimity voting system, no initiative will succeed unless the change proposed is efficiency enhancing. (b) anticipated Irving Fisher and Milton Friedman in addressing the possibility that a central bank’s attempts to use expansionary monetary policies to drive the real
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Econ434MC12A - Topic 12: Neoclassical and Related...

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