Great Depression and Macroeconomic School and Thoughts

Question 1

There is no liquidity trap.

Answer 1

Monetarist

Question 2

use marginal value to analyze economic problems.

Answer 2

Marginalism

Question 3

IS-LM model

Answer 3

Investment Saving (IS) and Liquidity Preference and Money Supply (LM)

Question 4

Hundreds of banks immediately closed their doors after the market crashed, and by 1932 one fourth of the nation’s banks had closed

Answer 4

almost 6000 banks

Question 5

Explain prices rise when government prints to much money

Answer 5

↑ Money Supply -> ↑ Aggregate Demand -> ↑ Employment -> ↑ Cost -> ↑ Price, Hence, Inflation…..

Question 6

Monetarist inspired by

Answer 6

– Milton Friedman (1912)
– Karl Brunner (1916)
– Allan H. Meltzer (1928)

Question 7

Motivated by the great depression

Answer 7

Keynesian Economics

Question 8

Rational expectation by and features

Answer 8

John Muth
Features:
- people would look to the future.
- people use information wisely.
- people would not make
systematic errors.

Question 9

New Classical Economics initiated because of theoretical

Answer 9

introduce microeconomic foundation in
macroeconomics instead of AD-AS model.

Question 10

Classical Economics: Aggregate demand

Answer 10

Assume that T = Q; MV = PQ

Question 11

Government should ensure that market works
smoothly as possible via microeconomic
policies.

Answer 11

New Keynesian Economics

Question 12

describes the relationship between the market for economic goods and money markets

Answer 12

IS-LM Model

Question 13

paying a fraction of its worth with a
promise to pay the rest once the stock was sold…aka borrowing money to purchase stocks

Answer 13

Purchasing stock on margin

Question 14

Household may not know the price level at the time they make
decision.

Answer 14

Imperfect information

Question 15

Prices and wages can adjust quickly and fully.

Answer 15

Classical Economics

Question 16

Philips curve

Answer 16

Monetarist

Question 17

Neoclassical Economics inspired by

Answer 17

– William Jevons (1835-1882)
– Carl Menger (1840-1921)
– Leon Walras (1834-1910)
– Alfred Marshall (1842-1924)

Question 18

Five key factors

Answer 18

1. Unchecked stock speculation
2. Weak and unregulated banking institutions
3. Overproduction of goods
4. The decline of the farming industry
5. Unequal distribution of wealth

Question 19

The classical theory centers on the quantity
theory of money

Answer 19

MV = PT

Question 20

investors rushed the stock
exchange and sold their stocks at a loss of
over $4 billion.

Answer 20

Oct 28, 1929

Question 21

According to New Keynesian Economics, There are 3 main problems with new classical

Answer 21

1. Unhappy / involuntary workers.
2. 1982 US recession.
3. Intertemporal substitution of labor does not
   seem to be as large as RBC suggested.
4. Hysteresis of unemployment.

Question 22

shows the inverse relationship between
money wage and the rate of unemployment.

Answer 22

Philips curve

Question 23

Uses IS-LM model

Answer 23

Keynesian Economics

Question 24

The main idea is “invisible hand”. The most
effective market system is the market without
government intervention. The outcome will be
efficient.

Answer 24

Classical Economics

Question 25

New Keynesian uses the new classical model but introduces:

Answer 25

– Union models – Contracts and staggering of price and wage changes – Menu cost and imperfect competition

Question 26

Friedman argued that money illusion occurs in the __________ only.

Answer 26

short run

Question 27

Many speculators of the 1920s borrowed __% of the stock’s value

Answer 27

90

Question 28

New Classical Economics initiated by

Answer 28

– Robert Lucas Jr. – Neil Wallace – Thomas Sargent – Robert Barro

Question 29

Classical Economics inspired by

Answer 29

– David Hume – Adam Smith – Thomas Malthus – David Ricardo

Question 30

New Classical Economics initiated because of empirical

Answer 30

inconsistencies between Keynesian and Monetarist and what actually happened in 1970s from oil price shocks, “Stagflation”.

Question 31

New classical fails to explain the important empirical fact, deviations from capacity output tended to be prolonged and correlated.

Answer 31

Real Business cycle

Question 32

1929, the Federal Trade Commission reported that 1% of the American population possessed over ___________

Answer 32

59% of the country’s wealth

Question 33

On Oct 29, known as “________” orders to sell at any price swamped over the stock market.

Answer 33

Black Tuesday

Question 34

Rational Expectation

Answer 34

New Classical Economics

Question 35

On Oct 29, known as “________” orders to sell at any price swamped over the stock market.

Answer 35

Black Tuesday

Question 36

spending more money than they were saving

Answer 36

Consumerism

Question 37

Adaptive expectation.

Answer 37

Monetarist

Question 38

The curves are parameterized by expectations of the values of the exogenous variable.

Answer 38

Parameterization of AS, Ls and Ld curve

Question 39

Economic fluctuations are due to supply side such as technological changes, natural disaster, tax, input prices, etc.

Answer 39

Real Business cycle

Question 40

Prices and wages can adjust quickly and fully.

Answer 40

Classical Economics

Question 41

Households and firms learn reasonably and quickly about economic environment.

Answer 41

Classical Economics

Question 42

The economy is always fully-employed.

Answer 42

Classical Economics

Question 42

The position of AS changes because of capital stock, technology, or skill of labor.

Answer 42

Classical Economics

Question 42

Money supply changes has not effect on current output, only affect price.

Answer 42

Classical Economics