Which of the Following Statements Accurately Expresses the Assumptions on Which

question 29

Multiple Choice

Which of the following statements accurately expresses the assumptions on which new Keynesian and new classical theory are based?

• A)New Keynesian economics assumes that the economy can reach equilibrium below the natural rate of unemployment, whereas new classical economics assumes that macroeconomic equilibrium is always at the natural rate of unemployment.
• B)New Keynesian economics maintains that government intervention is unnecessary, whereas classical economics supports an active government role.
• C)New Keynesian economics assumes that the long-run Phillips curve is vertical, whereas new classical economics views the long-run Phillips curve as horizontal.
• D)New Keynesian economics assumes that all prices are flexible, whereas new classical economics applies a fixed-price model.
• E)New Keynesian economics emphasizes short-run reductions in inflation rates, whereas new classical economics focuses on short-run reductions in the unemployment rate.

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Definitions:

Preference

An economic term referring to the assumption that individuals have the capacity to order or rank different bundles of goods or outcomes in terms of their satisfaction.

Substitutes

Products or services that can be used in place of each other, where an increase in the price of one leads to an increase in demand for the other.

Market-Clearing Level

Market-Clearing Level is the price point at which the quantity of goods supplied is equal to the quantity of goods demanded, eliminating any surplus or shortage in the market.

Quantity Supplied

The total amount of a good or service that producers are willing and able to sell at a given price over a specific period.