According to the classical economists, full employment is achieved when
A Aggregate demand equals aggregate supply
B All willing workers get jobs at prevailing wage rate
C Government intervenes in the economy
D Money supply is increased
Classical theory assumes wage flexibility ensures that all those willing to work at the ruling wage rate are employed.
The classical theory of employment is based on the assumption of
A Sticky wages
B Government intervention
C Wage flexibility
D Demand deficiency
Classical economists believed that flexible wages automatically restore full employment.
According to classical economists, unemployment occurs due to
A Demand deficiency
B Technological progress
C Rigid wages
D Excessive savings
If wages are inflexible above equilibrium, unemployment may persist in classical framework.
Say’s Law of Market states that
A Demand creates its own supply
B Supply creates its own demand
C Investment creates savings
D Consumption creates income
Say’s Law asserts that production generates income sufficient to purchase the output produced.
According to Say’s Law, general overproduction is
A Always possible
B Possible in short run only
C Impossible
D Caused by excess savings
Classical economists denied the possibility of general glut due to Say’s Law.
Classical economists believed that savings are always equal to
A Income
B Consumption
C Investment
D Employment
They assumed interest rate flexibility ensures equality between savings and investment.
In classical theory, the rate of interest is determined by
A Money supply and money demand
B Liquidity preference
C Demand and supply of loanable funds
D Government policy
Classical economists explained interest through the loanable funds theory.
According to classical theory, increase in savings will lead to
A Fall in income
B Fall in consumption
C Increase in investment
D Unemployment
Higher savings lower interest rate, encouraging investment.
Classical economists believed money to be
A Non-neutral
B Active
C Neutral
D Dynamic
Money was considered neutral, affecting only prices and not real output.
The classical theory assumes full employment as
A A long-run tendency
B A short-run exception
C An unrealistic condition
D A government objective
Classical economists viewed full employment as the normal long-run position.
Which of the following is a criticism of Say’s Law?
A It ignores role of money
B It assumes excess demand
C It accepts general glut
D It supports government intervention
Keynes criticized Say’s Law for ignoring the role of money and demand deficiency.
According to Keynes, unemployment exists because of
A Wage rigidity
B Excess savings
C Deficiency of effective demand
D High interest rates
Keynes argued that insufficient aggregate demand causes involuntary unemployment.
Keynesian theory rejects the assumption of
A Demand deficiency
B Wage rigidity
C Full employment
D Liquidity preference
Keynes rejected the classical assumption that full employment is automatic.
According to Keynes, wages are
A Perfectly flexible
B Downward flexible
C Rigid in short run
D Determined by demand only
Keynes emphasized wage rigidity as a cause of unemployment.
Keynesian theory is also known as
A Demand-side theory of employment
B Supply-side theory
C Neutral theory
D Classical theory
Keynes emphasized aggregate demand as the determinant of employment.
Keynes criticized classical theory mainly because it
A Overemphasized demand
B Ignored savings
C Assumed full employment
D Ignored supply
Keynes argued that full employment is not automatic.
According to Keynes, equality between saving and investment is achieved through
A Interest rate
B Income changes
C Wage flexibility
D Price level
Keynes held that income adjusts to equate saving and investment.
Keynesian theory mainly applies to
A Long-run period
B Very short run
C Short run
D Secular trend
Keynes focused on short-run fluctuations and unemployment.
According to Keynes, money is
A Neutral
B Passive
C Active
D Irrelevant
Money affects output and employment through interest rates and demand.
In Keynesian economics, unemployment is described as
A Voluntary
B Frictional only
C Involuntary
D Seasonal only
Workers willing to work at current wages may still remain unemployed.
Which concept replaced Say’s Law in Keynesian theory?
A Effective demand
B Aggregate supply
C Aggregate demand
D Marginal efficiency of capital
Effective demand determines output and employment in Keynesian theory.
Classical economists believed that reduction in wages would
A Increase unemployment
B Reduce demand
C Increase employment
D Have no effect
Wage reduction lowers costs and increases employment in classical view.
Keynes opposed wage cuts because they
A Increase employment
B Reduce consumption demand
C Increase savings
D Increase profits
Wage cuts reduce income and consumption, lowering aggregate demand.
Which of the following is a basic assumption of classical theory?
A Price rigidity
B Government intervention
C Perfect competition
D Demand deficiency
Classical theory assumes perfectly competitive markets.
Keynes considered unemployment as
A Temporary phenomenon
B Natural phenomenon
C Permanent feature of capitalism
D Seasonal issue
Keynes believed capitalism could settle at underemployment equilibrium.
Classical economists explained employment determination through
A Demand side
B Supply side
C Monetary side
D Fiscal side
Classical theory focuses on labour supply and wage flexibility.
Which of the following is NOT a classical assumption?
A Full employment
B Wage rigidity
C Neutral money
D Say’s Law
Classical theory assumes wage flexibility, not rigidity.
Keynesian theory emphasizes the role of
A Labour supply
B Interest rate only
C Aggregate demand
D Population growth
Aggregate demand determines income and employment.
According to Keynes, reduction in interest rate may not increase investment due to
A Excess savings
B Liquidity trap
C Wage rigidity
D High prices
In liquidity trap, interest rate becomes ineffective.
Liquidity preference refers to demand for money for
A Consumption purpose
B Saving purpose
C Holding cash
D Investment purpose
Liquidity preference is desire to hold money instead of bonds.
Keynesian unemployment is caused due to
A Population growth
B Labour union pressure
C Insufficient aggregate demand
D Technological change
Demand deficiency is central to Keynesian unemployment.
Classical economists believed that government intervention
A Is essential
B Is harmful
C Stabilizes economy
D Increases employment
Laissez-faire was central to classical thought.
Keynes advocated government intervention to
A Reduce production
B Increase savings
C Boost effective demand
D Reduce wages
Fiscal policy was suggested to stimulate demand.
Which of the following is a core Keynesian proposition?
A Supply creates demand
B Demand creates supply
C Effective demand determines employment
D Wage cuts ensure full employment
Employment depends on effective demand in Keynesian theory.
Keynesian economics gained prominence after
A World War I
B Great Depression of 1930s
C World War II
D Oil crisis
The Great Depression exposed limits of classical theory.
According to classical theory, labour market clears through
A Demand adjustment
B Government spending
C Wage flexibility
D Price rigidity
Wage adjustment ensures equilibrium in labour market.
Keynes rejected classical labour market equilibrium because
A Wages are inflexible downward
B Demand is always sufficient
C Prices are flexible
D Labour supply is fixed
Downward wage rigidity prevents automatic employment adjustment.
Classical economists viewed unemployment as
A Involuntary
B Cyclical
C Temporary and self-correcting
D Permanent
Market forces were believed to correct unemployment.
Keynesian theory supports which policy during recession?
A Contractionary fiscal policy
B Expansionary fiscal policy
C Neutral monetary policy
D Laissez-faire
Government spending should increase to raise demand.
Which factor differentiates Keynesian theory from classical theory most clearly?
A Role of labour
B Role of money
C Role of technology
D Role of population
Keynes emphasized active role of money in real economy.
Keynesian theory assumes that prices are
A Perfectly flexible
B Downward rigid
C Always rising
D Always falling
Price rigidity prevents quick market clearing.
According to classical economists, savings is a function of
A Income
B Interest rate
C Consumption
D Employment
Savings depend on interest rate in classical view.
According to Keynes, savings is primarily a function of
A Interest rate
B Wage rate
C Income
D Price level
Keynes held that saving depends on income level.
Which school of thought introduced the concept of involuntary unemployment?
A Classical
B Neo-classical
C Keynesian
D Monetarist
Keynes emphasized involuntary unemployment.
Classical theory assumes economy operates at
A Underemployment equilibrium
B Full employment equilibrium
C Zero employment
D Disequilibrium
Full employment is considered normal state.
Keynes rejected Say’s Law because
A Supply does not create demand automatically
B Demand is always sufficient
C Savings equal investment
D Wages are flexible
Demand deficiency can cause unemployment.
Keynesian theory is also called
A Neutral theory
B Supply-side theory
C Demand management theory
D Classical theory
Focus is on managing aggregate demand.
According to Keynes, cutting wages may worsen unemployment because
A Costs increase
B Consumption falls
C Investment rises
D Exports decline
Lower wages reduce income and consumption demand.
Classical economists ignored unemployment because they assumed
A Perfect competition
B Neutral money
C Full employment
D Excess demand
Full employment was assumed as given.
Keynesian revolution refers to
A Rejection of market economy
B Emphasis on government control
C Shift from supply-side to demand-side analysis
D Adoption of socialism
Keynes shifted focus to aggregate demand and government intervention. ;