Whenever fiscal policy actions, such as income tax cuts, are utilized to expand the economy, the Keynesians prefer
a. a contractionary monetary policy.
b. monetary policy to stay the same because of the liquidity trap.
c. accompanying decreases in the money supply that will cause the interest rate to rise and, thus, prevent the crowding out of investment.
d. accompanying increases in the money supply in order to prevent the interest rate from rising and, thus, prevent the crowding out of investment.
e. both b and/or d
Question 2
Which of the following models explains why high unemployment has persisted in some European countries for such long periodsperiods too long to be the result of fixed money-wage contracts or backward-looking price expectations?
a. Insider outsider models
b. Efficiency wage models
c. Sticky price models
d. IS-LM models
In 2008, the U.S. economy suffered a gaping wound as several trillion dollars were ripped out of it.
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