If the Economy Diverges from Its Full-Employment Output, New Classical

question 53

Multiple Choice

If the economy diverges from its full-employment output, new classical economics would suggest that:

• A) A change in the velocity of money would be all that is needed to return it to its full-employment output
• B) An improvement in insider-outsider relationships is all that is needed to return it to its full-employment output
• C) An efficiency wage in the economy would return it to its full-employment output
• D) Internal mechanisms within the economy would automatically return it to its full-employment output

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Definitions:

Marginal Cost

The charges incurred for the production of an additional unit of a good or service.

Deadweight Loss

A loss of economic efficiency that can occur when the equilibrium for a good or a service is not achieved due to market inefficiencies.

Consumer Surplus

The difference in planned versus actual spending by consumers on a good or service.

Price Discrimination

A pricing strategy where a firm charges different prices for the same product or service to different consumers, based on their ability to pay, in order to maximize profits.