1.) Which of the following statements describes what
happens after a recession occurs according to
the neoclassical model?
Select all that apply:
With flexible wages and prices, firms will increase wages and
short-run aggregate supply will decrease.
With flexible wages and prices, firms will reduce wages and
short-run aggregate supply will increase.
The economy will return to potential level of GDP.
The economy will remain stuck in a recession for a prolonged
period of time.
2.) Suppose that the economy is operating above its potential
level of GDP. Which of the following is a concern?
Select the correct answer below:
unemployment is too high
employment is too low
inflation pressures increase
there is a risk of deflation
3.) If the natural rate of unemployment is 4.7%, and
the economy is currently operating at its long-run equilibrium
level of real GDP, neoclassical economists __________________.
Select the two correct answers
below.
Select all that apply:
will not recommend the use of expansionary policy, as it will
only cause inflation
recommend the use of expansionary policy in order to keep the
economy at potential level of output
will not recommend the use of contractionary policy as it will
only cause deflation
recommend the use of contractionary policy in order to prevent
inflation from creeping up
4.) According to Keynes, if aggregate demand is not
high enough to provide firms with an incentive to hire enough
workers to reach full employment ______________.
Select the correct answer below:
an inflationary gap would occur
a recessionary gap would occur
economic growth would occur
none of the above