The basic Classical model and the notion that a market economy is self-regulatin

Question

The basic Classical model and the notion that a market economy is self-regulating began with: a. the debate between David Ricardo and Thomas Malthus. b. the refining of Say's Law in the late 1700s. c. the writing of John Stuart Mill's On Liberty. d. the publication of Adam Smith's The Wealth of Nations. The Classical model is biased on the assumption that: a. prices, wages, and interest rates are flexible. b. an increase in demand creates an equal increase in supply. c. a market economy, if left alone, is not likely to reach a full-employment equilibrium. d. a general overproduction, or "glut", of goods and services occurs when there is voluntary unemployment. The economy depicted in the above graph is experiencing a(n) gap. The current rate of unemployment is than the natural rate of unemployment. a. recessionary; higher b. recessionary; lower c. inflationary; higher d. inflationary; lower The Classical approach argues that the above gap: a. will automatically close because wages and other input prices will rise and SRAS will shift to the left. b. will automatically close because wages and other input prices will fall and SRAS will shift to the right. c. can only be closed if government intervenes forcing it to close. d. cannot occur in a market economy.

Explanation / Answer

1) ans: D

2) ans: A

3)ans: A

As natural rate of unemployment is higher than the equilibrium there will be recession.During recession workers are laid off from employment as during recession consumer demand decreases.

4) ans: B

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.