Econ - Exam 3

Front 1

John M. Keynes was able to illustrate how the macro-economy could enter a deep and protracted recession (depression) but he was never able to fully develop a logical explanation of how such a position could achieve "equilibrium" for the economy.

Back 1

FALSE

Front 2

The tendency of people save during bad times was in Keynes view problematic and not helpful in efforts to achieve a fast and sustainable recovery from recessionary conditions.

Back 2

TRUE

Front 3

The "tax multiplier" is always one greater than the "expansion multiplier."

Back 3

FALSE

Front 4

In the "special case" conditions developed by Keynes, the CPI is assumed to be constant.

Back 4

TRUE

Front 5

John Maynard Keynes believed that when sales slow for durable goods, the firm producing such good find that they are accumulating inventories above their "planned levels" and therefore would tend to react by laying off workers and not hire them back until the excess inventories were sold -- and in turn, additional income would be lose in other sectors producing a decline in real GDP throughout the macro-economy.

Back 5

TRUE

Front 6

The "Y-intersect" of the AE function (aggregate expenditures function) in the Keynesian model will occur at the level of "induced expenditures."

Back 6

FALSE

Front 7

Keynes illustrated that in addition to the interest rate being a determinant of the level of household durable goods consumption and business investment, the expectations about future income and sales were equally significant in determining the level of planned spending of both households and firms and therefore the realized level of real GDP.

Back 7

TRUE

Front 8

If the MPC is 90 then the "tax multiplier" must be 10.

Back 8

FALSE

Front 9

The "balanced budget multiplier" value is equal to 1.

Back 9

TRUE

Front 10

According to the balanced budget multiplier concept, if there is $100 billion dollar recession and the Congress and President do not want to wait on a series of "income rounds" to close the recession, the government could increase both taxes and government spending by $100 billion dollars to "close the recessionary gap."

Back 10

TRUE

Front 11

Keynes believed that the fiscal options available to government in helping to manage an economy were "tax" and "spend" programs. Futhermore, he viewed the "tax" option as exerting a "direct effect" on the desired objective of economic expansion (or contraction) and the "government spending" option as exerting only an "indirect" or "potential impact" upon macro-economic conditions -- depending ultimately upon the decisions of the private sector and their response to such spending programs.

Back 11

FALSE

Front 12

Contractionary fiscal policy involves increasing government purchases or decreasing taxes.

Back 12

FALSE

Front 13

Government policy decisions would likely incorporate contractionary fiscal policy to reduce increases in aggregate demand that seem likely to lead to inflation.

Back 13

TRUE

Front 14

The closer the economy if to the potential full employment level of GDP -- the less likely there would be any "crowding-out" resulting from government spending programs.

Back 14

FALSE

Front 15

The Phillips curve integrated the relationship between the CPI and the unemployment rate in economy and found that in the long-run, the Phillips data indicated the curve would be vertical over the natural rate of unemployment for that economy.

Back 15

TRUE

Front 16

The Keynesian range of the LRAS curve for the economy would be horizontal while the classical range of the LRAS would be vertical.

Back 16

TRUE

Front 17

The "short-run" Phillips model indicated that there would be a tradeoff between the CPI and the unemployment rate such that -- within the relevant range, as the CPI increases, we would expect to see the unemployment rate falling.

Back 17

TRUE

Front 18

Sustainable technological development is important to maintain the rightward advance of the LRAS curve -- an objective that would be consistent with sustaining economic growth and the ability to support population and a reasonable standard of living for the country.

Back 18

TRUE