Chapter 11 Flashcards
Our economy is always tending towards full employment according to
The classical Economists
At equilibrium GDP
Savings = investment and aggregates demand =aggregated supply
Laissez-faire economics was advocated by
The classical but not by Keynes
Says 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 amount 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 the employment except
Government spending programs
Which best describes the classical theory of employments except
Government spending programs
Which beat describes the classical theory of employment?
We will occasionally have some unemployment, but our economy will automatically move back towards 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 ——-investments.
Is equal to; is equal to
To fight 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 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 -orientated
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 rate, wages, and prices.
The principal cause of the Great Depression of the 1930s was
A collapse in the aggregate demand
Classical employment theory holds that
All of the choices are true of classical employment theory.
Classical economists believe 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 by a decrease in interest rates wages and prices.
The Keynesians point of view suggests that
Demand creates its own supply
Unintended inventory changes
Are signals to business firms to increase or cut production
Which question did John Maynard Keyes pose for the classical economist?
What if savings and investments wet not equal?
