434) Which of the following will not cause the level of unemployment to settle above the level where the aggregate supply curve of labour intersects the aggregate demand curve for labour?

Answer is:

Hysteresis

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435) What is the main reason that led classical economists to believe that the government need not respond to a demand shock which led to unemployment?

Answer is:

Real wages are highly flexible

436) According to the idea of the neutrality of money, or the classical dichotomy, which of the following statements describes the long-run effect of a rise in the money stock?

It has no effect

It affects variables expressed in nominal terms, notably prices, but not variables expressed in real terms, notably output and unemployment

It affects variables expressed in real terms, notably output and unemployment, but not variables expressed in nominal terms, notably prices.

It affects variables expressed in nominal terms and variables expressed in real terms, notably prices, output and unemployment

Answer is:

It affects variables expressed in nominal terms, notably prices, but not variables expressed in real terms, notably output and unemployment

437) According to the quantity theory of money, what long-run effect will a 10% rise in the money stock have on the price level?

Answer is:

The price level will rise by 10%

438) Keynes suggested several reasons why the government should not rely on flexible real wages to remove demand-deficient unemployment. Which of the following was not one of these reasons?

Workers would resist cuts in nominal wages which reduced their wages relative to those paid in other occupations

Trade unions would resist cuts in nominal wages

Even if nominal wages fell, there might then be falls in prices, and this could lead to a further fall in demand in the economy if people deferred some purchases until they felt prices would fall no further

Any efforts by the government to increase demand in the economy would lead to higher real wages and so increase unemployment

Answer is:

Any efforts by the government to increase demand in the economy would lead to higher real wages and so increase unemployment

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