Review Questions

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

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

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

8. What is the difference between rational expectations and adaptive expectations?

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?

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

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

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

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

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

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.

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.

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