Deck 40: Keynesian View of Aggregate Supply and Demand

Question 1

Whats defention of terms:
-effective demand

Answer 1

demand when someone has both desire and money

Question 2

Whats defention of terms:
-Keynesian cross

Answer 2

a model that illustrates the relationship between aggregate production and aggregate expenditures; it can be used to explain why unemployment can be a persistent condition

Question 3

Whats defention of terms:
-leakage

Answer 3

money income that is not spent on consumption or investment; caused by funds used for savings, imports, and taxes

Question 4

Explain and give examples of how a progressive view of aggregate supply and demand is completely different from the traditional view.
-What is "effective demand" according to Keynes? How can there be a lack of effective demand?

Question 5

Explain and give examples of how a progressive view of aggregate supply and demand is completely different from the traditional view.
-Can aggregate demand suffer from "leakages" according to the traditional view? Explain.

Question 6

Discuss how Keynes refuted Say's law.
-How did Keynes explain that aggregate production and aggregate spending might not be equal? What happens if aggregate production is greater than aggregate spending?

Question 7

Discuss how Keynes refuted Say's law.
-Why does aggregate spending rise more slowly than income?

Question 8

Describe how Keynes built an entirely new view of aggregate supply and demand in which an economy may not automatically recover from a recession.
-How do Keynesians counter the neoclassical argument that, in a recession, falling prices will restore demand for goods to the full employment equilibrium point?

Question 9

Describe how Keynes built an entirely new view of aggregate supply and demand in which an economy may not automatically recover from a recession.
-How do Keynesians counter the neoclassical argument that in a recession, falling wages and salaries will restore demand for labor to the full employment equilibrium point?

Question 10

Describe how Keynes built an entirely new view of aggregate supply and demand in which an economy may not automatically recover from a recession.
-How do Keynesians counter the neoclassical argument that in a recession, falling interest rates will restore demand for loans for new investment to the full employment equilibrium point?

Question 11

Describe how Keynes built an entirely new view of aggregate supply and demand in which an economy may not automatically recover from a recession.
-How does Keynes explain inflation?

Question 12

Compare and contrast the arguments of critiques of classical economics and Say's law.
-How do Marx and Mitchell refute Say's law?

Question 13

Compare and contrast the arguments of critiques of classical economics and Say's law.
-Compare and contrast Marx and Mitchell's arguments to that of Keynes.

Question 14

Keynes defined aggregate supply as

A) the total dollar amount of money spent on goods and services by consumers, investors, government and net spending by foreigners at a given price level.
B) the total dollar amount of money spent on goods and services by consumers at a given price level.
C) the total output produced and offered for sale at a given price level by all economic units.
D) the total output produced and offered for sale at a given price level by the private sector.

Question 15

Keynes defined aggregate demand as

A) the total dollar amount of money spent on goods and services by consumers, investors, government and net spending by foreigners at a given price level.
B) the total dollar amount of money spent on goods and services by consumers at a given price level.
C) the total output produced and offered for sale at a given price level by all economic units.
D) the total output produced and offered for sale at a given price level by the private sector.

Question 16

Keynes stressed the importance of effective demand which is

A) when business firms are effective in convincing consumers that they have a demand for certain goods.
B) when consumers have the desire for goods and services as well as the income to purchase these goods.
C) when the demand for goods and services is effective in satisfying individuals desires.
D) when aggregate demand is less than aggregate supply.

Question 17

National or aggregate income includes

A) profits, rent and interest income.
B) wages, salaries and profits.
C) wages, salaries, rent and interest income.
D) wages, salaries, rent, profits and interest income.

Question 18

The Keynesian cross diagram shows

A) the relationship between equilibrium income and full employment.
B) the relationship between aggregate demand and aggregate supply.
C) the relationship between equilibrium demand and the price level.
D) the relationship between full employment and the price level.

Question 19

The basic definition of GDP used in the Keynesian framework is

A) GDP = C + I + S + X
B) GDP = C + I + G + X
C) GDP = C + I + G + NX
D) GDP = C + S + B + NX

Question 20

Leakages from the circular flow include

A) savings, investment, and taxes.
B) savings, imports, and taxes.
C) exports, savings, and investment.
D) exports, investment, and imports.
E) investment, taxes, and imports.

Question 21

-Diagram 40a indicates that

A) equilibrium income is above full employment.
B) equilibrium income is below full employment.
C) equilibrium income is the same as full employment.
D) equilibrium income is the same as aggregate spending.

Question 22

-Diagram 40a indicates that

A) the economy is experiencing stagflation.
B) the economy is experiencing economic growth
C) the economy is experiencing inflation
D) the economy is experiencing unemployment.

Question 23

-Diagram 40a indicates that

A) aggregate spending and aggregate product are the same.
B) aggregate spending and aggregate income are the same.
C) aggregate product and aggregate income are the same.
D) aggregate spending and equilibrium income are the same

Question 24

Conservatives and Keynesians differ on the appropriate response of the government to a recession. Which of the following is a true statement?

A) Conservatives believe the economy will not recover from an outside shock without government assistance.
B) Conservatives believe the economy will automatically adjust to an outside shock.
C) Conservatives believe there is no such thing as an outside shock.
D) Conservatives believe that governments can prevent an outside shock.

Question 25

Conservatives and Keynesians differ on the appropriate response of the government to a recession. Which of the following is a true statement?

A) Keynesians believe that governments should increase spending to make up for a deficiency of aggregate demand.
B) Keynesians believe that governments should intervene in the economy only in the case of an outside shock.
C) Keynesians believe that governments do not need to intervene, because the economy is always in equilibrium.
D) Keynesians believe that governments can prevent an outside shock.

Question 26

Wesley Mitchell made a study of business cycles and found that booms and busts

A) occur in all types of economies.
B) only occur under capitalism.
C) were more severe in the feudal period.
D) occur more often in a barter system.

Question 27

At the beginning of the Great Depression

A) neoclassical economists insisted that the government should increase spending.
B) neoclassical economists predicted that the economy would soon return to normal.
C) neoclassical economists agreed that the problem was lack of effective demand.
D) neoclassical economists predicted the fall of capitalism.

Question 28

According to Keynesian economists, the problem in the Great Depression was

A) a major outside shock.
B) deficit spending by the government.
C) a lack of effective demand.
D) government interfering with the natural tendency of the economy to restore equilibrium.