Economics Test 3 – Flashcards
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In the Great Depression, the formula GDP = C + I + G + Xn became an interactive exercise for a(n) _______________ economy.
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contracting
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In 1929 the U.S. stock market fell which in turn caused a widespread loss of confidence and a collapse in Investment spending, followed by rising _______________.
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unemployment
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In the Classical Theory, if businesses want more funds, the interest rate will _________ and people will save more money and consume less.
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increase
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In the Classical Theory if Aggregate Demand decreases only a decrease in the __________ level is possible since the assumption is for a constant level of full employment.
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unemployment rate
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In the Classical Bathtub Model the water flowing out of the tub (leakage) includes ______________ .
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savings
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Adam Smith's ___________ economics is the idea that an economy with less government restriction serves people best for allowing free allocation of resources.
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laissez faire
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According to Say's Law: Recession is unlikely since people receive money to produce and the funds they receive _________ be spent to buy other goods. According to Say's Law: Recession is unlikely since people receive money to produce and the funds they receive _________ be spent to buy other goods.
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will
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In the 1930's "bad psychology" in the business sector overwhelmed the attractiveness of lower interest rates and caused businesses to avoid borrowing money for Investment when they already had too much ___________ relative to AD.
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capcity
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Even though interest rates were lower in the Great Depression, businesses became ____________ about the economy and did not spend enough on Investment to return Savings into the flow.
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pessimistic
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The Law of Markets (Ricardo, Mill, et al) argues that recession (low business activity) is due to ___________________
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a lack of supply
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In this example of the Classical adjustment process, the Real Spending GDP _________ drop below the "full employment" level of $5000 billion.
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does not, may briefly
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According to the Classical Theory, the level of water in the "Bathtub" (employment, income, and output) is always at the maximum because _________ is (are) assumed to create Demand.
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supply
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As ______________ continued to expand in the early 1930's, Aggregate Supply continued to be greater than Aggregate Demand prompting businesses to further cuts in employment and output.
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inventories
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In this example of a Classical adjustment to declining Aggregate Demand, there is ________________ contributed to an understanding of today's modern economic theories.
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something
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In this example of the Classical adjustment process, the recession is avoided when _______________________________ is increased by $100 billion which effectively offsets the decline in Business Investment spending.
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consumption spending by Households
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Competition and ____________ forces will drive the economy to continuous adjustments in the allocation of resources toward full production.
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laissez-faire
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In the 1930's "bathtub negatives" were experienced as __________________ , but could not be fully restored even through additional reductions in wages and prices.
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consumption spending decreased
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The Keynesian Theory "Bathtub" is illustrated above. If injections and leakages (T, S and M) remain constant, then the level of economic activity will _____________ .
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none of the above
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In Keynesian Theory if government increases spending that in turn causes an increase in employment and Investment by the private sector would be encouraged or "_____________ ."
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crowded in
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If the MPS is 0.2 and a component of AD, such as Investment, is increased by $10, then the maximum amount of change in income and output for the nation would be ___________ .
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$50
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The tendency to spend marginal income (or the percentage of the extra income that is spent) is called the ___________ .
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MPC
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Keynesian Theory assumptions are shown in the AS/AD graph below. AD can be increased in Stage ______ without low or no inflation.
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stage 1 and 2
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With the continuation of the Great Depression in the 1930's ______________ explanations of economic activity began to be widely studied.
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Keynesian
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One reason that wages and prices are not very flexible to the downside is that labor is _____________ replaceable in the production process.
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not immdiately
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If MPC is 0.8, then the multiplier is _____.
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5
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With Keynesian Policy during periods of ____________, tax increases can be used to reduce the problem and can even result in a government spending surplus.
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high inflation
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The multiplier process will end when the net amount of increased __________ (leakage) from the process is equal to the initial increase in government spending (injection).
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savings
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The ______________ is the average tendency to save income at a given income level.
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APS
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If AD decreases (AD shifts _______), business inventories will increase resulting in business cutting back employment causing decreases in income and consumption.
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left
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The amount of an increase in income is called the _________ income.
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marginal
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Unplanned investment relates to ___________ in inventory that were unexpected and must be replaced.
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reductions
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According to the multiplier concept when there is a change in any one of the ________ factors (C, I , G, or Xn), a multiple impact upon the income, employment, and output of the nation will occur.
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Aggregate Demand
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Aggregate Demand (AD) is the total demand at various __________ levels for goods and services within the economy.
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price
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According to Keynes, savings and investment were seldom equal because savings is accumulated for future transactions and speculations or for ___________ reasons.
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precautionary
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With a recession, Classical Theorists recommend that government _________ spending.
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decrease
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Keynesian Theory advocates use of government deficits to manage an economy. This is referred to as __________________.
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countercydical fiscal policy
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The Keynesian Theory "Bathtub" is illustrated below. Increasing flows in one or more of the spending variables (C, I, G or NX) will, ceteris paribus, __________ the income, employment, and output (water level in the tub).
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increase
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One of the true risks of high national debt is that interest payments to foreign debt holders are a leakage from the debtor's flow of national income causing a potential __________ .
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recessionary left shift in AD
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Creating more money to finance a deficit frequently results in inflation since there is more money chasing a limited amount of products (right shift of AD with a ___________ AS).
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stablefixed
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An industrialized nation with a large national debt would be unlikely to not pay its debt as this would have disastrous results in the__________________.
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globalized financial markets
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The amount of the ____________ effect will depend on the type of fiscal policy created.
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multiplier
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A ___________ deficit is the amount of the deficit that would exist if the current G and T were applied given full employment.
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structural
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If there is an equal increase in government spending (G) and in taxes of $80 billion with an MPC of 0.80, then a total of $_____________ billion is added to the GDP after the multiplier effects.
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$80
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In applying fiscal policy Conservatives will normally seek to limit government and will be inclined to ________ taxes (T) during a recession to stimulate the economy.
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decrease
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If MPC is 0.9, then the simple multiplier is __________ .
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10
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When __________ funds are set aside (idling the excess) and government does not spend the money nor apply it to past debt, this action does not cause expansion or contraction.
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surplus
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___________ fiscal policy is the action of government to tax and spend to influence the economy in a positive manner.
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Discretionary
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Through fiscal policy, government seeks to avoid _________ as well as high inflation.
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recession (and unemployment above the natural rate)
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Assuming no change in government spending, an decrease in taxes of $80 billion with an MPC of 0.50 will add a total of $_____________ billion to the economy after the multiplier effect.
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80
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Active (discretionary) fiscal policy has _______ critics.
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many
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Banks and individuals own about __________ percent of the national debt.
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16
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The ownership of the national debt is about __________ percent by government or quasi-government agencies (Federal Reserve).
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60
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Fiscalists (those advocating active fiscal policy) assume that government, through taxation and spending, can influence the economy in a positive way. There is always __________ in addition to risk is this approach.
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uncertainity, cost, benefit
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One of the potential benefits of the borrowing that creates national debt is the ___________ that it can create if the money is invested wisely in public projects.
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economic growth (expanding PPF)
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________ policy is the planned use of government taxation (T) and spending (G).
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Fiscal
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One of the true risks of high national debt is that interest payments to foreign debt holders are a leakage from the debtor's flow of national income causing a potential __________ .
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recessionary left shift in AD
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If there is an equal increase in government spending (G) and in taxes of $80 billion with an MPC of 0.80, then a total of $_____________ billion is added to the GDP after the multiplier effects.
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80
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If there is a structural deficit at full employment then G is still __________________ .
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expansionary
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When G is increased, the multiplier is applied to all of the ___________.
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injection
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The ownership of the national debt is about __________ percent by government or quasi-government agencies (Federal Reserve).
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60
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The __________ budget multiplier is the amount of magnification applied to economic activity when an equal change is made in G and T.
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balanced
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Conservatives prefer to ____________ to stimulate the economy during a recessionary gap (less than full employment and output).
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decrease T
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Unemployment benefits, welfare, and some subsidies automatically ___________ in an inflationary economy.
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decrease
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The total public debt is about $10 trillion for the United States ... _________ our GDP.
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somewhat less than
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If MPC is 0.75, then the simple multiplier is __________ .
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4
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The __________ curve was the rationale for an effective 25 percent decrease in tax rates during the Reagan Administration of the 1980's.
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Laffer
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Nondiscretionary fiscal policy or built-in stabilizers automatically _____________ government spending (G) during inflations.
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decrease
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Political leaders may propose _______ policy to aid their own political interest by promoting the upside of the business cycle to coincide with an election.
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fiscal
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Assuming no change in government spending, an increase in taxes of $100 billion with an MPC of 0.80 will subtract a total of $_____________ billion from the economy after the multiplier effect.
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400
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There is often a moderate amount of ___________ with fiscal policy because many variables can be changing at one time.
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risk and uncertainty
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________ based economies typically have higher tax rates than market-based economies because their governments provide more goods and services such as nationalized medical care.
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socialist
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The Employment Act of 1946 was passed by Congress for government to accept _________ responsibility for promoting full employment and price stability.
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some
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Increases in G will increase the economy's GDP by causing a(n) ________ in the AD.
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injection and right shift
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The amount of a decrease in T _______ all go to an increase in Consumption spending because of the MPC effect.
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does not
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Decreases in T will increase the economy's GDP by causing a(n) ________ in the AD
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injection and right shift
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If a deficit increased from -$100 billion to -$400 billion, fiscal policy would be considered __________.
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expansionary
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Assuming no change in taxes, an increase in government spending (G) of $80 billion with an MPC of 0.90 will add a total of $_____________ billion to the economy after the multiplier effect.
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800
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The basic applications of fiscal policy relates to ___________ Theory.
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Keynesian
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In the middle of this decade China owned over $1 trillion (about _____ %) of the American national debt.
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10
