Chapter 11

Question 1

Our economy is always tending towards full employment according to

Answer 1

The classical Economists

Question 2

At equilibrium GDP

Answer 2

Savings = investment and aggregates demand =aggregated supply

Question 3

Laissez-faire economics was advocated by

Answer 3

The classical but not by Keynes

Question 4

Says law states that

Answer 4

Supply creates its own demand.

Question 5

People work, according to Jean Baptiste Say, so that they can

Answer 5

Spend

Question 6

According to the classical economists, if the amount of money people are planning to invest is greater than the amount that people want to save

Answer 6

Interest rates will rise and savings will rise

Question 7

Each of the following supports the classical theory of the employment except

Answer 7

Government spending programs

Question 8

Which best describes the classical theory of employments except

Answer 8

Government spending programs

Question 9

Which beat describes the classical theory of employment?

Answer 9

We will occasionally have some unemployment, but our economy will automatically move back towards full employment

Question 10

Keynes considered full employment GDP to be

Answer 10

A rare occurrence

Question 11

The Keynesian and classical aggregate supply analyses

Answer 11

Are very similar

Question 12

At equilibrium GDP, aggregate demand —– aggregate supply and savings ——-investments.

Answer 12

Is equal to; is equal to

Question 13

To fight depression, Keynes said that the government should

Answer 13

Spend a lot of money

Question 14

The notion that everything the economy produces is purchased

Answer 14

Sums up Say’s law

Question 15

Classical economics was based upon the belief that

Answer 15

Full employment was the natural state of the economy and that government should not interfere with the private market forces of supply and demand.

Question 16

Keynesian economics finds fault with the the classical economic argument that wage and price flexibility would guarantee full employment because

Answer 16

Large unions and businesses resist wage and price cuts and lower wages mean decreased incomes and consumer spending

Question 17

Keynesian theory

Answer 17

Is primarily demand -orientated

Question 18

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

Answer 18

The Keynesians

Question 19

According to the classical economists

Answer 19

If unemployment appears, it would soon disappear because of a reduction in interest rate, wages, and prices.

Question 20

The principal cause of the Great Depression of the 1930s was

Answer 20

A collapse in the aggregate demand

Question 21

Classical employment theory holds that

Answer 21

All of the choices are true of classical employment theory.

Question 22

Classical economists believe that

Answer 22

Flexible interest rates wages and prices would assure full employment

Question 23

According to the classical economists, an increase in unemployment

Answer 23

Would be reduced by a decrease by a decrease in interest rates wages and prices.

Question 24

The Keynesians point of view suggests that

Answer 24

Demand creates its own supply

Question 25

Unintended inventory changes

Answer 25

Are signals to business firms to increase or cut production

Question 26

Which question did John Maynard Keyes pose for the classical economist?

Answer 26

What if savings and investments wet not equal?