_____17. According to Keynesian Theory what factor will ultimately determine the
ID: 2495869 • Letter: #
Question
_____17. According to Keynesian Theory what factor will ultimately determine the level of employment?
income of the employer.
total output of the economy.
total real wage level.
interest rates on investment.
aggregate demand of the economy.
_____18. Unlike classical theory that believed labor supply was fixed, Keynesians believe that amount of labor supply depends on the current money wage and the expectations about the aggregate:
income level.
price level.
demand level.
supply level.
output level.
_____19. The declining marginal product of labor and the increasing upward pressure on money wages as output and employment increase explain why the Keynesian aggregate supply schedule is:
downward sloping.
horizontal.
vertical.
fixed.
upward sloping.
_____20. Hicks’ theory on compensation tests would be most similar to:
cost-benefit analysis.
input-output analysis.
supply-demand analysis.
marginal utility analysis.
division of labor analysis.
Explanation / Answer
17. aggregate demand of the economy.
Keynes's theory of the determination of equilibrium income and employment focuses on the relationship between aggregate demand (AD) and aggregate supply (AS). According to him equilibrium employment (income) is determined by the level of aggregate demand (AD) in the economy, given the level of aggregate supply (AS).
18. price level.
Because prices determine their purchasing power of real money wage.
19. upward sloping.
20. cost-benefit analysis.
Hicks was of the view that changes in economic policy or organisation can make some individual better off and others worse off. This is same in cost benefit analysis where we see what is the cost of any action as compared to benefits from it.
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