Question 1

Keynes believed

Accepted Answer

Keynes believed that during a depression, government intervention through increased spending was necessary to stimulate demand and pull the economy out of recession.

Question 2

To the monetarists,the key to maintaining stable economic growth is

Accepted Answer

Monetarists believe that maintaining a constant and low increase in the money supply is essential to achieving stable economic growth. This is because they believe that changes in the money supply directly impact prices and inflation, and thus maintaining a stable money supply can help prevent inflation and promote economic stability. Balancing the federal budget and maintaining adequate aggregate supply and demand may also be important factors, but they are not typically seen as central to the monetarist approach.

Question 3

The classical economists believed

Accepted Answer

The classical economists believed that the economy was essentially self-regulating and that government intervention was not necessary. They believed that the market would naturally adjust itself to restore equilibrium in the long run, even during recessions or economic downturns. They also believed that wages and prices were flexible and would adjust accordingly in response to changes in supply and demand. They did not advocate for quick countercyclical actions by the government or believe that recessions would become depressions if left alone.

Question 4

Keynes believed in all of the following,except

Accepted Answer

Keynes rejected Say's Law, which holds that supply creates its own demand and that markets will always clear without the need for government intervention. He believed that demand could fall short of the economy's potential output, leading to high levels of unemployment and economic stagnation.

Question 5

The monetarists believe

Accepted Answer

Monetarists believe that the key to stable economic growth is a constant rate of increase in the money supply. They argue that too much money expansion will create inflation, and too little will cause a recession. Therefore, they advocate for a slow, steady increase in the supply of money to maintain economic stability.

Question 6

Statement I: The classical economists believed recessions were temporary and would cure themselves.
Statement II: The Keynesians believed the economy was basically unstable and that government intervention was needed to cure depressions.

Accepted Answer

Classical economists indeed thought that markets were self-correcting and that recessions would naturally correct themselves over time. Keynesians, on the other hand, believed that the economy could remain in a depressed state for a long time without government intervention, thus advocating for active fiscal and monetary policies to mitigate economic downturns.

Question 7

Which statement is the most accurate?

Accepted Answer

The classical economists, including Adam Smith, believed in the concept of Say's Law, which states that supply creates its own demand. This means that in the long run, everything produced gets sold.

Question 8

Which of the following statements are true?

Accepted Answer

Classical economics lost most of its popularity in the 1930s due to the Great Depression, which highlighted the limitations of classical economic theories in addressing severe economic downturns. This period saw the rise of Keynesian economics, which advocated for government intervention to manage economic cycles.

Question 9

The newest school of economic thought to emerge are ________.

Accepted Answer

The economic behaviorists represent the newest school of economic thought, focusing on psychological insights into human behavior to explain economic decision-making.

Question 10

According to Keynes,

Accepted Answer

According to Keynes, the problem during recessions was inadequate aggregate demand, which could be addressed through increased government spending, tax cuts, and monetary policy. While consumer spending is important, it alone cannot stimulate the economy out of a depression, and the key to investment spending is not aggregate supply but rather the expectation of future demand.

Question 11

Keynesians

Accepted Answer

Keynesians believe that wages and prices are inflexible downward, meaning that in times of economic downturns, prices and wages do not adjust quickly enough to restore economic equilibrium. Therefore, they advocate for government intervention in the economy, such as increased government spending, to stimulate demand and reduce unemployment.

Question 12

Statement I: According to the rational expectations theory,the prime economic mover is aggregate supply,not aggregate demand. Statement II: Unlike the "old" classical economists of the 19^th century,the rational expectationists of today believe that government intervention to affect aggregate demand is sometimes necessary.

Accepted Answer

Statement I is true as rational expectations theory does focus on how expectations of future economic conditions influence current economic outcomes, often emphasizing the role of supply-side factors. Statement II is false because rational expectationists generally believe that markets are efficient and that government intervention is often unnecessary or counterproductive, not that it is sometimes necessary.

Question 13

Classical economists believed that in the long run the economy would fix itself,thus there was no need for any government action.Which of the following economists disagreed,saying,"In the long run,we are all dead."

Accepted Answer

This quote is attributed to John Maynard Keynes, who disagreed with the classical economic theory and instead believed in active government intervention to address economic issues.

Question 14

All of the following schools of economics advocate small government in all circumstances as the best policy,except

Accepted Answer

Keynesian economics advocates for government intervention in times of economic downturns to stimulate demand and stabilize the economy. The other schools of economics listed prioritize smaller government and market-oriented solutions.

Question 15

Statement I: President Reagan in 1981 and President George W.Bush in 2003 used "supply-side" arguments to justify tax cuts.
Statement II: When President George W.Bush signed legislation passing the 2003 tax cut,it represented a return to the Keynesian approach to managing the economy.

Accepted Answer

Statement I is true as both President Reagan and President George W. Bush used supply-side arguments for tax cuts. However, statement II is false as supply-side economics and Keynesian economics are opposing theories, and a return to one is not synonymous with the other.

Question 16

The classical economists believed in all the following,except

Accepted Answer

The classical economists did believe in the crude version of the quantity theory of money, laissez faire, and Say's Law. However, the sophisticated version of the quantity theory of money is a more modern development and was not a belief held by the classical economists.

Question 17

The monetarists believe

Accepted Answer

Monetarists believe that increasing the money supply will lead to increased spending, which can stimulate economic growth. They advocate for controlling inflation and regulating the money supply to achieve stable economic growth. Balancing the budget is not their primary concern, and they do not believe that expansionary monetary policy can permanently reduce unemployment. They also recognize that the money supply may need to vary in response to changes in the economy.

Question 18

The origin of classical economics was based on the book written by

Accepted Answer

The origin of classical economics can be traced back to the book "The Wealth of Nations" written by Scottish economist Adam Smith in 1776. He laid the foundations of classical economics in this book and introduced the concept of laissez-faire economics, which means that the economy should operate without government interference.

Question 19

When faced with the Great Recession,both Presidents,most members of Congress and Federal Reserve officials showed that they were really true believers in the ___________ school of economic thought.

Accepted Answer

The Keynesian school of economic thought emphasizes the role of government spending and intervention during times of economic downturns to stimulate demand and create jobs. During the Great Recession, the government implemented several Keynesian policies, such as the American Recovery and Reinvestment Act, to jumpstart the economy. Additionally, the Federal Reserve used monetary policy to stimulate economic growth, which is also consistent with Keynesian theory.

Question 20

Which of the following schools of economic thought would be against balancing the budget during a recession?

Accepted Answer

Keynesians believe that during a recession, the government should increase spending and lower taxes to stimulate demand and boost economic growth. Balancing the budget during a recession would likely involve cutting spending or raising taxes, which could further harm the economy.

Quiz 15: A Century of Economic Theory

Keynes believed

To the monetarists,the key to maintaining stable economic growth is

The classical economists believed

Keynes believed in all of the following,except

The monetarists believe

Statement I: The classical economists believed recessions were temporary and would cure themselves. Statement II: The Keynesians believed the economy was basically unstable and that government intervention was needed to cure depressions.

Which statement is the most accurate?

Which of the following statements are true?

The newest school of economic thought to emerge are ________.

According to Keynes,

Keynesians

Classical economists believed that in the long run the economy would fix itself,thus there was no need for any government action.Which of the following economists disagreed,saying,"In the long run,we are all dead."

All of the following schools of economics advocate small government in all circumstances as the best policy,except

Statement I: President Reagan in 1981 and President George W.Bush in 2003 used "supply-side" arguments to justify tax cuts. Statement II: When President George W.Bush signed legislation passing the 2003 tax cut,it represented a return to the Keynesian approach to managing the economy.

The classical economists believed in all the following,except

The monetarists believe

The origin of classical economics was based on the book written by

When faced with the Great Recession,both Presidents,most members of Congress and Federal Reserve officials showed that they were really true believers in the ___________ school of economic thought.

Which of the following schools of economic thought would be against balancing the budget during a recession?