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Principles of Macroeconomics

Steven A. Greenlaw, David Shapiro

Chapter 13

The Neoclassical Perspective - all with Video Answers

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Chapter Questions

01:02

Problem 1

Do rational expectations tend to look back at past experience while adaptive expectations look ahead to the future? Explain your answer.

Kaylee Mcclellan
Kaylee Mcclellan
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02:12

Problem 2

Legislation proposes that the government should use macroeconomic policy to achieve an unemployment rate of zero percent, by increasing aggregate demand for as much and as long as necessary to accomplish this goal. From a neoclassical perspective, how will this policy affect output and the price level in the short nun and in the long run? Sketch an aggregate demand/aggregate supply diagram to illustrate your answer. Hint: revisit Figure 13.4

Oluwadamilola Ameobi
Oluwadamilola Ameobi
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01:07

Problem 3

Would it make sense to argue that rational expectations economics is an extreme version of neoclassical economics? Explain.

Kaylee Mcclellan
Kaylee Mcclellan
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01:39

Problem 4

Summarize the Keynesian and Neoclassical models.

Kaylee Mcclellan
Kaylee Mcclellan
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00:49

Problem 5

Does neoclassical economics focus on the long term or the short term? Explain your answer.

Kaylee Mcclellan
Kaylee Mcclellan
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00:33

Problem 6

Does neoclassical economics view prices and wages as sticky or flexible? Why?

Kaylee Mcclellan
Kaylee Mcclellan
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00:30

Problem 7

What shape is the long-run aggregate supply curve? Why does it have this shape?

Kaylee Mcclellan
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03:21

Problem 8

What is the difference between rational expectations and adaptive expectations?

Sanchit Jain
Sanchit Jain
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00:42

Problem 9

A neoclassical economist and a Keynesian economist are studying the economy of Vineland. It appears that Vineland is beginning to experience a mild recession with a decrease in aggregate demand. Which of these two economists would likely advocate that the government of Vineland take active measures to reverse this decline in aggregate demand? Why?

Kaylee Mcclellan
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00:27

Problem 10

Do neoclassical economists tend to focus more on long term economic growth or on recessions? Explain briefly.

Kaylee Mcclellan
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00:45

Problem 11

Do neoclassical economists tend to focus more on cyclical unemployment or on inflation? Explain briefly.

Kaylee Mcclellan
Kaylee Mcclellan
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00:50

Problem 12

Do neoclassical economists see a value in tolerating a little more inflation if it brings additional economic output? Explain your answer.

Kaylee Mcclellan
Kaylee Mcclellan
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00:55

Problem 13

If aggregate supply is vertical, what role does aggregate demand play in determining output? In determining the price level?

Kaylee Mcclellan
Kaylee Mcclellan
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00:47

Problem 14

What is the shape of the neoclassical long-run Phillips curve? What assumptions do economists make that lead to this shape?

Kaylee Mcclellan
Kaylee Mcclellan
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00:48

Problem 15

When the economy is experiencing a recession, why would a neoclassical economist be unlikely to argue for aggressive policy to stimulate aggregate demand and return the economy to full employment? Explain your answer.

Kaylee Mcclellan
Kaylee Mcclellan
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00:44

Problem 16

If the economy is suffering through a rampant inflationary period, would a Keynesian economist advocate for stabilization policy that involves higher taxes and higher interest rates? Explain your answer.

Kaylee Mcclellan
Kaylee Mcclellan
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00:50

Problem 17

If most people have rational expectations, how long will recessions last?

Oluwadamilola Ameobi
Oluwadamilola Ameobi
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00:45

Problem 18

Explain why the neoclassical economists believe that the government does not need to do much about unemployment. Do you agree or disagree? Explain.

Kaylee Mcclellan
Kaylee Mcclellan
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01:28

Problem 19

Economists from all theoretical persuasions criticized the American Recovery and Reinvestment Act. The "Stimulus Package" was arguably a Keynesian measure so why would a Keynesian economist be critical of it? Why would neoclassical economists be critical?

Kaylee Mcclellan
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01:01

Problem 20

Is it a logical contradiction to be a neoclassical Keynesian? Explain.

Kaylee Mcclellan
Kaylee Mcclellan
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01:53

Problem 21

Use Table 13.3 to answer the following questions.
$$\begin{array}{c|cc}
\hline \begin{array}{c}
\text { Price } \\
\text { Level }
\end{array} & \begin{array}{c}
\text { Aggregate } \\
\text { Supply }
\end{array} & \begin{array}{c}
\text { Aggregate } \\
\text { Demand }
\end{array} \\
\hline 90 & 3,000 & 3,500 \\
\hline 95 & 3,000 & 3,000 \\
\hline 100 & 3,000 & 2,500 \\
\hline 105 & 3,000 & 2,200 \\
\hline 110 & 3,000 & 2,100 \\
\hline
\end{array}$$
a. Sketch an aggregate supply and aggregate demand diagram.
b. What is the equilibrium output and price level?
c. If aggregate demand shifts right, what is equilibrium output?
d. If aggregate demand shifts left, what is equilibrium output?
e. In this scenario, would you suggest using aggregate demand to alter the level of output or
to control any inflationary increases in the price level?

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator