According to classical economists, which one of the following is the correct (recommended) sequence of occurrences?
A.
The economy is in a recession, production falls and unemployment rises ==> the government increases spending, the money supply, and lowers taxes ==> total spending rises ==> employment rises ==> GDP rises
B.
The economy is in a recession, production falls and unemployment rises ==> prices, wages, and interest rates decrease ==> business costs fall, profits rise, borrowing and consumer spending rise ==> employment and production rise ==> GDP rises
C.
The economy is in an expansion, incomes are rising and production increases ==> the government decreases spending ==> less inflation ==> the economy continues to expand
D.
The economy is in a recession, production falls and unemployment rises ==> spending falls ==> more layoffs ==> less production ==> more layoffs ==> deeper recession
E.
The economy is in an expansion ==> prices rise ==> consumer spending falls ==> production falls ==> the economy contracts (recession)
According to classical economists, which one of the following is the correct (recommended) sequence of occurrences?
| A. | The economy is in a recession, production falls and unemployment rises ==> the government increases spending, the money supply, and lowers taxes ==> total spending rises ==> employment rises ==> GDP rises |
| B. | The economy is in a recession, production falls and unemployment rises ==> prices, wages, and interest rates decrease ==> business costs fall, profits rise, borrowing and consumer spending rise ==> employment and production rise ==> GDP rises |
| C. | The economy is in an expansion, incomes are rising and production increases ==> the government decreases spending ==> less inflation ==> the economy continues to expand |
| D. | The economy is in a recession, production falls and unemployment rises ==> spending falls ==> more layoffs ==> less production ==> more layoffs ==> deeper recession |
| E. | The economy is in an expansion ==> prices rise ==> consumer spending falls ==> production falls ==> the economy contracts (recession) |
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6) According to Classical theory, the economy is self-regulating. If it is in a recessionary gap, what happens? Question options:
Wages rise, the SRAS curve shifts leftward, and both Real GDP and the price level rise.
Wages fall, the SRAS curve shifts rightward, the price level falls, and Real GDP rises.
Wages fall, the SRAS curve shifts leftward, the price level rises, and Real GDP falls.
none of the above
7) According to the classical economists, which of the following statements is true?
Question options:
| Financial markets ensure that S will equal I.. | |||||||||||
| Interest rate flexibility will ensure that planned saving is equal to planned investment. | |||||||||||
| There is a direct relationship between the amount individuals plan to save and the interest rate - higher rates cause people to save more and lower rates reduce savings. | |||||||||||
| Interest rates determine how much business firms invest - higher interest rates reduce investment and lower rates increase investment. | |||||||||||
| All of the above are true. 10) If actual Real GDP is greater than the full employment Real GDP, then the (actual) unemployment rate is Question options:
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