Which of the following statements is inconsistent with the Classical Theory of Economics?supply creates its own demandthe economy’s level of investment spending depends solely on the level of income.the economy will produce at the full-employment level of output.the economy has an environment of “laissez faire.” According to the quantity theory of money, inflation is ultimately controlled byprivate firms who set prices.the monetary authorities who control the money supply.those who control output.the price of oil. According to the quantity theory of money, the quantity of money determines theinterest rate.level of output.price level.level of employment. Which of the following statements is (are) correct? The equilibrium interest rate is the rate thatequates the supply of funds with the demand for fundsequates new saving with consumptionequates private spending with investmentAll of the above Keynesian Theory: multiple choices (5 points each) When considering the level of unemployment, Keynes emphasis was on ___.changes in technologyaggregate demandinflationary expectationslending by financial institutions In the Keynesian model, a decrease in investment decreases ___.the money supply by an equal amountthe money supply by a multiple amountincome by a multiple amountincome by an equal amount The marginal propensity to consume is:the change in consumption when there is a change in income.equal to the marginal propensity to save.equal to 1 minus the tax rate.the change in consumption associated with a change in wealth. For Keynes, the interest rate is determined by:the equilibrium between savings and investmentthe level of consumptionliquidity preference by ‘bulls’ and ‘bears’ in the bonds marketthe level of investment Explain the differences between the Classical Theory and the Keynesian Theory in relation to: The importance of supply and demandRole of moneyFull employmentRelation between savings and investmentUsing a graph of the classical labor market, illustrate the effects of a real wage existing in the market that is higher than the equilibrium real wage (draw the labor supply and labor demand curve), like a minimum wage, for example. What are the effects of this policy, according to the Classical Theory?True or false? Justify your answer.In the classical model, when there is an increase in money supply, there will be an increase in investment and a decrease in the price level.What is the Say’s Law? And what is the consequence of Say’s Law for employment level?Explain how, in Keynes’s theory, expectations affect investment demand. Why, to Keynes, aggregate demand is unstable?

Classical economists believe in full employment and any deviation from full employment automatically…

Answered: Which of the following statements is…

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Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Which of the following statements is inconsistent with the Classical Theory of Economics?
supply creates its own demand
the economy’s level of investment spending depends solely on the level of income.
the economy will produce at the full-employment level of output.
the economy has an environment of “laissez faire.”

According to the quantity theory of money, inflation is ultimately controlled by
private firms who set prices.
the monetary authorities who control the money supply.
those who control output.
the price of oil.

Which of the following statements is (are) correct? The equilibrium interest rate is the rate that
equates the supply of funds with the demand for funds
equates new saving with consumption
equates private spending with investment
All of the above

Keynesian Theory: multiple choices (5 points each)

Explain the differences between the Classical Theory and the Keynesian Theory in relation to:

The importance of supply and demand
Role of money
Full employment
Relation between savings and investment
Using a graph of the classical labor market, illustrate the effects of a real wage existing in the market that is higher than the equilibrium real wage (draw the labor supply and labor demand curve), like a minimum wage, for example. What are the effects of this policy, according to the Classical Theory?