Test Answers on Economic Policy: Influential Theories – Flashcards
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How did Adam Smith's economic ideas help the United States establish a free enterprise system? Check all that apply.
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1.3.4
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A government might enact expansionary spending when it is trying to
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increase aggregate demand for goods.
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Monetarism plays a role in economic growth by
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NOT influencing the supply of goods.
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Which economists most likely would have agreed with the US government's intervention during an economic crisis in 2008?
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NOT Adam Smith and Friedrich von Hayek
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Friedrich Hayek believed that
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the economy is too complicated to apply aggregates.
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The graph shows an early economic theory known as the "invisible hand." Which best describes the idea behind the "invisible hand"?
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NOT Consumers decide what they need and want to buy, which guides the economy. Producers and consumers work together, which guides the economy.
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Why did Friedrich Hayek call expansionary spending dangerous?
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He felt it could lead to inflation and poor decisions by consumers.
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Classical economics played an important role in helping the United States establish
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free enterprise
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The graph shows Keynes's theory of aggregate demand. What is likely to happen if a new aggregate demand curve moves to the right?
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Prices and output would rise in the short and long run
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John Maynard Keynes believed that governments should increase spending in order to
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NOT increase supply.
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Milton Friedman led a new economic school of thought called
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monetarism
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Which occurred during the Great Depression? Check all that apply.
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2.4.5
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Expansionary monetary policy is used when a government
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increases its money supply to boost the economy.
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According to Milton Friedman, _________ policy is the best way to influence the economy's aggregate demand.
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monetary
