Chapter 11 Flashcards
Which question did John Maynard Keynes pose for the classical economists?
What if savings and investment were not equal?
Our economy is always tending towards full employment according to
the classical economists.
At equilibrium GDP
Savings = investment and aggregate demand = aggregate supply.
Laissez-faire economics was advocated by
the classicals, but not by Keynes.
Say’s law states that
supply creates its own demand.
People work, according to Jean Baptiste Say, so that they can
spend
According to the classical economists, if the amounts of money people are planning to invest is greater than the amount that people want to save,
interest rates will rise and savings will rise.
Each of the following supports the classical theory of employment except
government spending programs.
Which best describes the classical theory of employment?
We will occasionally have some unemployment, but our economy will automatically move back toward full employment.
Keynes considered full employment GDP to be
a rare occurrence.
The Keynesian and classical aggregate supply analyses
are very similar.
At equilibrium GDP, aggregate demand _______ aggregate supply and savings _______ investment.
is equal to; is equal to
To fight a depression, Keynes said that the government should
spend a lot of money.
The notion that everything the economy produces is purchased
sums up Say’s law.
Classical economics was based upon the belief that
full employment was the natural state of the economy and that government should not interfere with the private market forces of supply and demand.
Keynesian economics finds fault with the classical economic argument that wage and price flexibility would guarantee full employment because
large unions and businesses resist wage and price cuts and lower wages mean decreased incomes and consumer spending.
Keynesian theory
is primarily demand-oriented.
“The economy can be in equilibrium, with aggregate supply equal to aggregate demand, at a level substantially below the full employment level of output.” This statement best describes the views of
the Keynesians.
According to the classical economists
if unemployment appears, it would soon disappear because of a reduction in interest rates, wages, and prices.
The principal cause of the Great Depression of the 1930s was
a collapse in aggregate demand.
Classical employment theory holds that
All of the choices are true of classical employment theory.
Classical economists believed that
flexible interest rates, wages, and prices would assure full employment.
According to the classical economists, an increase in unemployment
would be reduced by a decrease in interest rates, wages, and prices.
The Keynesian point of view suggests that
demand creates its own supply.
Unintended inventory changes
are signals to business firms to increase or cut production.
