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Intermediate Macroeconomics
Spring 2013
Sample Question Set #2
Classical Macroeconomics
1.
In macroeconomics, to whom does the term “Classical School” refer?
2.
Discuss: “The Classical Model is the result of an attempt to understand Keynesian
economics.”
3.
Discuss the two basic assumptions of the SV Classical Model.
4.
What are the three components of the SV Classical Model?
5.
Define the short-run aggregate production function in the SV Classical Model and
note the three main relationships it portrays. Which components are fixed and
which are variable in the short-run?
6.
Derive the aggregate labor demand curve and define the short-run determinants of
aggregate labor demand, labor supply and labor force participation. How would
involuntary unemployment arise in such a labor market? Discuss how the level of
real output is determined in the SV Classical Model.
7.
Contrast the SV Classical Model with the Classical Model presented by Ahiakpor.
8.
Did classical economists, as Keynes asserted, assume “full employment”? What
was the classical theory of employment (and unemployment) variation? Would the
classical economists assert that the AS curve is vertical at full employment?
9.
State the conventional argument concerning the relationship between Say’s Law,
Classical economics, and Keynesian economics. Distinguish between what
Snowdon and Vane refers to as the weak and strong versions of Say’s Law.
10. State the individual and aggregate versions of Say’s Principle. Upon the basis of
Say’s Principle, discuss both of the following: “A general glut of commodities is
impossible.” “Aggregate demand always equals aggregate supply.” Suppose we
have a model of the economy in which the only commodities are labor, goods,
bonds and money. If there exists an aggregate positive excess demand for money,
what is known concerning the aggregate money values of the other commodities in
the model?
11. Briefly present the arguments of Baumol and Kates concerning Say’s Law.
Connect to Clower and Leijonhufvud’s notion of Say’s Principle and Yeager and
Rabin’s presentation of the monetary aspects of Walras’s Law.
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12. What is saving?
13. Derive the Classical Model’s loanable funds market. What is the impact of a
change in planned saving upon the real interest rate, real saving, real investment
and real aggregate expenditures?
14. Define the Cambridge money demand function and Fisher’s income version of the
equation of exchange. In classical thinking, what crucial assumption leads to the
conclusion that the money stock determines the price level?
15. Discuss the effects of (a) a decrease in the money stock, and (b) an increase in
planned saving within the SV Classical Model. Contrast it with how Ahaikpor views
the classical economists.
16. Discuss the meaning of “monetary neutrality.” In the SV version of the Classical
Model, is this true in the short-run, long-run, never, or always? Why?
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