ccording to Keynes, aggregate demand could be too low in an economy. What does t
ID: 1224471 • Letter: C
Question
ccording to Keynes, aggregate demand could be too low in an economy. What does this mean?
a. It means there is not enough purchasing power in the economy to maintain stable prices.
b. It means there are too many of some goods produced and too few of other goods produced.
c. It means spending in the economy is too low to bring about full employment.
d. It means that wages may get stuck in a recessionary gap because there is not enough demand (in the economy) to increase them.
e. none of the above
Having the government run deficits to stimulate the economy in a contractionary gap and run surpluses to restrain an expansionary gap is called what kind of policy and is suggested by what theory?
a. fiscal policy; Classical theory
b. monetary policy; Keynesian theory
c. fiscal policy; Keynesian theory
d. laissez-faire policy; Classical theory
e. laissez-faire policy; Keynesian theory
Which of the following is a difference between John Maynard Keynes and the classical economists?
a. Keynes did not believe that unemployment was a serious long-term problem; the classical economists did.
b. Keynes did not believe that the economy was always in equilibrium; the classical economists did.
c. Keynes did not believe that the economy necessarily settled at full employment; the classical economists did.
d. Keynes believed that the economy was always in equilibrium; the classical economists did not.
e. Keynes believed that a general glut of output was a good thing for the economy; the classical economists believed a glut created an unemployment problem for the economy.
Which of the following might be considered the most contractionary set of fiscal policies?
a. increase in government purchases, increase in taxes, and decrease in transfer payments
b. decrease in government purchases, increase in taxes, and decrease in transfer payments
c. increase in government purchases, decrease in taxes, and increase in transfer payments
d. increase in government purchases, increase in taxes, and increase in transfer payments
e. decrease in government purchases, decrease in taxes, and decrease in transfer payments
Which of the following statements is true?
a. Keynes believed wages and prices are often too flexible - falling wages can cause a recession.
b. Keynes believed an economy could get stuck in a recessionary gap.
c. Keynes advocated running government surpluses in times of recession.
d. Keynes believed the economy is self-regulating.
e. b and c
Explanation / Answer
1. It means spending in the economy is too low to bring about full employment.
2. fiscal policy; Classical theory
3. Keynes did not believe that the economy necessarily settled at full employment; the classical economists did.
4. decrease in government purchases, increase in taxes, and decrease in transfer payments
5. Keynes believed wages and prices are often too flexible - falling wages can cause a recession.
No explanation required
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