Theories Chapter 13 Flashcards
Country with the most gold is the best
Mercantilist
Money supply changes are the primary cause of the changes in real GDP
Monetarists
Workers are smart and will nullify any policy designed to end a recession
Rational Expectations
Workers can usually correctly predict future economic conditions
Rational Expectations
Exports are good, but imports are to be avoided
Mercantilist
Cut taxes to increase economic growth
Supply-Siders
Freely floating wages and prices will quickly end and shortages and surpluses
Classical
People will anticipate gov’t actions to stimulate or restrain the economy, and will adjust their responses accordingly
Rational Expectations
Gold should not be shipped out of the country for any reason
Mercantilist
Economies should be regulated so that exports are increasing, while imports are minimal
Mercantilist
Wages do NOT move quickly to end high unemployment. Gov’t action is needed.
Keynesian
When the central bank attempts to increase the money supply, people will raise their wage demands to compensate.
Rational Expectations
These two focus on increasing AD to end a recession
Keynesian
Monetarists
This one focuses on increasing LRAS
Supply-siders
Promotes deficit spending to end a recession
Keynesian
Against the Balanced Budget Amendment, since necessary deficits in one year can be paid off with surpluses in years of economic expansions
Keynesian
High levels of unemployment cause wages to fall and full employment to be restored
Classical
When inflation is accelerating, people will anticipate higher interest rates and will attempt to borrow up to their credit capability
Rational Expectations
Workers will demand an increase in pay when they hear of an upcoming expansionary fiscal policy in the works.
Rational Expectations
Ronald Regan was known for this
Supply-Siders
FDR and the New Deal
Keynesian
When people anticipate upcoming gov’t economic policy actions, they will act rationally to better themselves and will end up nullifying the gov’t attempt to improve the economy
Rational Expectations
Contract labor prevents wages from falling in a recession
Keynesian
Fiscal policy is needed to end a recession
Keynesian
Final policy won’t work to end a recession
classical, rational expectations, supply-siders, monetarists
Monetary policy is needed to end a recession
Monetarists
End gov’t regulation and lower taxes
supply-siders
To end high inflation, reduced the money supply
Monetarists
Leaders should restore confidence in the public after a scare so that they resume shopping and help the economy
Keynesian
Reduce corporate taxes in order to spark innovation and investment in high-tech equipment
Supply-Siders
Inflation and crowding out are NOT problems
Keynesian
Increase gov’t spending to end a recession
Keynesian
Reduce income taxes to increase the size of the labor force
Supply-Siders
Sticky wages won’t allow wages to fall to end recessions
Keynesian
To increase the nation’s level of output, just increase the nation’s money supply by the target amount + the target inflation rate
Monetarists
