Economics Test 3 – Flashcards

question
In the Great Depression, the formula GDP = C + I + G + Xn became an interactive exercise for a(n) _______________ economy.
answer
contracting
question
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 _______________.
answer
unemployment
question
In the Classical Theory, if businesses want more funds, the interest rate will _________ and people will save more money and consume less.
answer
increase
question
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.
answer
unemployment rate
question
In the Classical Bathtub Model the water flowing out of the tub (leakage) includes ______________ .
answer
savings
question
Adam Smith's ___________ economics is the idea that an economy with less government restriction serves people best for allowing free allocation of resources.
answer
laissez faire
question
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.
answer
will
question
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.
answer
capcity
question
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.
answer
pessimistic
question
The Law of Markets (Ricardo, Mill, et al) argues that recession (low business activity) is due to ___________________
answer
a lack of supply
question
In this example of the Classical adjustment process, the Real Spending GDP _________ drop below the "full employment" level of $5000 billion.
answer
does not, may briefly
question
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.
answer
supply
question
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.
answer
inventories
question
In this example of a Classical adjustment to declining Aggregate Demand, there is ________________ contributed to an understanding of today's modern economic theories.
answer
something
question
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.
answer
consumption spending by Households
question
Competition and ____________ forces will drive the economy to continuous adjustments in the allocation of resources toward full production.
answer
laissez-faire
question
In the 1930's "bathtub negatives" were experienced as __________________ , but could not be fully restored even through additional reductions in wages and prices.
answer
consumption spending decreased
question
The Keynesian Theory "Bathtub" is illustrated above. If injections and leakages (T, S and M) remain constant, then the level of economic activity will _____________ .
answer
none of the above
question
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 "_____________ ."
answer
crowded in
question
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 ___________ .
answer
$50
question
The tendency to spend marginal income (or the percentage of the extra income that is spent) is called the ___________ .
answer
MPC
question
Keynesian Theory assumptions are shown in the AS/AD graph below. AD can be increased in Stage ______ without low or no inflation.
answer
stage 1 and 2
question
With the continuation of the Great Depression in the 1930's ______________ explanations of economic activity began to be widely studied.
answer
Keynesian
question
One reason that wages and prices are not very flexible to the downside is that labor is _____________ replaceable in the production process.
answer
not immdiately
question
If MPC is 0.8, then the multiplier is _____.
answer
5
question
With Keynesian Policy during periods of ____________, tax increases can be used to reduce the problem and can even result in a government spending surplus.
answer
high inflation
question
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).
answer
savings
question
The ______________ is the average tendency to save income at a given income level.
answer
APS
question
If AD decreases (AD shifts _______), business inventories will increase resulting in business cutting back employment causing decreases in income and consumption.
answer
left
question
The amount of an increase in income is called the _________ income.
answer
marginal
question
Unplanned investment relates to ___________ in inventory that were unexpected and must be replaced.
answer
reductions
question
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.
answer
Aggregate Demand
question
Aggregate Demand (AD) is the total demand at various __________ levels for goods and services within the economy.
answer
price
question
According to Keynes, savings and investment were seldom equal because savings is accumulated for future transactions and speculations or for ___________ reasons.
answer
precautionary
question
With a recession, Classical Theorists recommend that government _________ spending.
answer
decrease
question
Keynesian Theory advocates use of government deficits to manage an economy. This is referred to as __________________.
answer
countercydical fiscal policy
question
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).
answer
increase
question
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 __________ .
answer
recessionary left shift in AD
question
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).
answer
stablefixed
question
An industrialized nation with a large national debt would be unlikely to not pay its debt as this would have disastrous results in the__________________.
answer
globalized financial markets
question
The amount of the ____________ effect will depend on the type of fiscal policy created.
answer
multiplier
question
A ___________ deficit is the amount of the deficit that would exist if the current G and T were applied given full employment.
answer
structural
question
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.
answer
$80
question
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.
answer
decrease
question
If MPC is 0.9, then the simple multiplier is __________ .
answer
10
question
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.
answer
surplus
question
___________ fiscal policy is the action of government to tax and spend to influence the economy in a positive manner.
answer
Discretionary
question
Through fiscal policy, government seeks to avoid _________ as well as high inflation.
answer
recession (and unemployment above the natural rate)
question
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.
answer
80
question
Active (discretionary) fiscal policy has _______ critics.
answer
many
question
Banks and individuals own about __________ percent of the national debt.
answer
16
question
The ownership of the national debt is about __________ percent by government or quasi-government agencies (Federal Reserve).
answer
60
question
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.
answer
uncertainity, cost, benefit
question
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.
answer
economic growth (expanding PPF)
question
________ policy is the planned use of government taxation (T) and spending (G).
answer
Fiscal
question
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 __________ .
answer
recessionary left shift in AD
question
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.
answer
80
question
If there is a structural deficit at full employment then G is still __________________ .
answer
expansionary
question
When G is increased, the multiplier is applied to all of the ___________.
answer
injection
question
The ownership of the national debt is about __________ percent by government or quasi-government agencies (Federal Reserve).
answer
60
question
The __________ budget multiplier is the amount of magnification applied to economic activity when an equal change is made in G and T.
answer
balanced
question
Conservatives prefer to ____________ to stimulate the economy during a recessionary gap (less than full employment and output).
answer
decrease T
question
Unemployment benefits, welfare, and some subsidies automatically ___________ in an inflationary economy.
answer
decrease
question
The total public debt is about $10 trillion for the United States ... _________ our GDP.
answer
somewhat less than
question
If MPC is 0.75, then the simple multiplier is __________ .
answer
4
question
The __________ curve was the rationale for an effective 25 percent decrease in tax rates during the Reagan Administration of the 1980's.
answer
Laffer
question
Nondiscretionary fiscal policy or built-in stabilizers automatically _____________ government spending (G) during inflations.
answer
decrease
question
Political leaders may propose _______ policy to aid their own political interest by promoting the upside of the business cycle to coincide with an election.
answer
fiscal
question
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.
answer
400
question
There is often a moderate amount of ___________ with fiscal policy because many variables can be changing at one time.
answer
risk and uncertainty
question
________ based economies typically have higher tax rates than market-based economies because their governments provide more goods and services such as nationalized medical care.
answer
socialist
question
The Employment Act of 1946 was passed by Congress for government to accept _________ responsibility for promoting full employment and price stability.
answer
some
question
Increases in G will increase the economy's GDP by causing a(n) ________ in the AD.
answer
injection and right shift
question
The amount of a decrease in T _______ all go to an increase in Consumption spending because of the MPC effect.
answer
does not
question
Decreases in T will increase the economy's GDP by causing a(n) ________ in the AD
answer
injection and right shift
question
If a deficit increased from -$100 billion to -$400 billion, fiscal policy would be considered __________.
answer
expansionary
question
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.
answer
800
question
The basic applications of fiscal policy relates to ___________ Theory.
answer
Keynesian
question
In the middle of this decade China owned over $1 trillion (about _____ %) of the American national debt.
answer
10
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question
In the Great Depression, the formula GDP = C + I + G + Xn became an interactive exercise for a(n) _______________ economy.
answer
contracting
question
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 _______________.
answer
unemployment
question
In the Classical Theory, if businesses want more funds, the interest rate will _________ and people will save more money and consume less.
answer
increase
question
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.
answer
unemployment rate
question
In the Classical Bathtub Model the water flowing out of the tub (leakage) includes ______________ .
answer
savings
question
Adam Smith's ___________ economics is the idea that an economy with less government restriction serves people best for allowing free allocation of resources.
answer
laissez faire
question
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.
answer
will
question
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.
answer
capcity
question
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.
answer
pessimistic
question
The Law of Markets (Ricardo, Mill, et al) argues that recession (low business activity) is due to ___________________
answer
a lack of supply
question
In this example of the Classical adjustment process, the Real Spending GDP _________ drop below the "full employment" level of $5000 billion.
answer
does not, may briefly
question
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.
answer
supply
question
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.
answer
inventories
question
In this example of a Classical adjustment to declining Aggregate Demand, there is ________________ contributed to an understanding of today's modern economic theories.
answer
something
question
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.
answer
consumption spending by Households
question
Competition and ____________ forces will drive the economy to continuous adjustments in the allocation of resources toward full production.
answer
laissez-faire
question
In the 1930's "bathtub negatives" were experienced as __________________ , but could not be fully restored even through additional reductions in wages and prices.
answer
consumption spending decreased
question
The Keynesian Theory "Bathtub" is illustrated above. If injections and leakages (T, S and M) remain constant, then the level of economic activity will _____________ .
answer
none of the above
question
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 "_____________ ."
answer
crowded in
question
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 ___________ .
answer
$50
question
The tendency to spend marginal income (or the percentage of the extra income that is spent) is called the ___________ .
answer
MPC
question
Keynesian Theory assumptions are shown in the AS/AD graph below. AD can be increased in Stage ______ without low or no inflation.
answer
stage 1 and 2
question
With the continuation of the Great Depression in the 1930's ______________ explanations of economic activity began to be widely studied.
answer
Keynesian
question
One reason that wages and prices are not very flexible to the downside is that labor is _____________ replaceable in the production process.
answer
not immdiately
question
If MPC is 0.8, then the multiplier is _____.
answer
5
question
With Keynesian Policy during periods of ____________, tax increases can be used to reduce the problem and can even result in a government spending surplus.
answer
high inflation
question
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).
answer
savings
question
The ______________ is the average tendency to save income at a given income level.
answer
APS
question
If AD decreases (AD shifts _______), business inventories will increase resulting in business cutting back employment causing decreases in income and consumption.
answer
left
question
The amount of an increase in income is called the _________ income.
answer
marginal
question
Unplanned investment relates to ___________ in inventory that were unexpected and must be replaced.
answer
reductions
question
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.
answer
Aggregate Demand
question
Aggregate Demand (AD) is the total demand at various __________ levels for goods and services within the economy.
answer
price
question
According to Keynes, savings and investment were seldom equal because savings is accumulated for future transactions and speculations or for ___________ reasons.
answer
precautionary
question
With a recession, Classical Theorists recommend that government _________ spending.
answer
decrease
question
Keynesian Theory advocates use of government deficits to manage an economy. This is referred to as __________________.
answer
countercydical fiscal policy
question
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).
answer
increase
question
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 __________ .
answer
recessionary left shift in AD
question
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).
answer
stablefixed
question
An industrialized nation with a large national debt would be unlikely to not pay its debt as this would have disastrous results in the__________________.
answer
globalized financial markets
question
The amount of the ____________ effect will depend on the type of fiscal policy created.
answer
multiplier
question
A ___________ deficit is the amount of the deficit that would exist if the current G and T were applied given full employment.
answer
structural
question
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.
answer
$80
question
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.
answer
decrease
question
If MPC is 0.9, then the simple multiplier is __________ .
answer
10
question
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.
answer
surplus
question
___________ fiscal policy is the action of government to tax and spend to influence the economy in a positive manner.
answer
Discretionary
question
Through fiscal policy, government seeks to avoid _________ as well as high inflation.
answer
recession (and unemployment above the natural rate)
question
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.
answer
80
question
Active (discretionary) fiscal policy has _______ critics.
answer
many
question
Banks and individuals own about __________ percent of the national debt.
answer
16
question
The ownership of the national debt is about __________ percent by government or quasi-government agencies (Federal Reserve).
answer
60
question
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.
answer
uncertainity, cost, benefit
question
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.
answer
economic growth (expanding PPF)
question
________ policy is the planned use of government taxation (T) and spending (G).
answer
Fiscal
question
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 __________ .
answer
recessionary left shift in AD
question
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.
answer
80
question
If there is a structural deficit at full employment then G is still __________________ .
answer
expansionary
question
When G is increased, the multiplier is applied to all of the ___________.
answer
injection
question
The ownership of the national debt is about __________ percent by government or quasi-government agencies (Federal Reserve).
answer
60
question
The __________ budget multiplier is the amount of magnification applied to economic activity when an equal change is made in G and T.
answer
balanced
question
Conservatives prefer to ____________ to stimulate the economy during a recessionary gap (less than full employment and output).
answer
decrease T
question
Unemployment benefits, welfare, and some subsidies automatically ___________ in an inflationary economy.
answer
decrease
question
The total public debt is about $10 trillion for the United States ... _________ our GDP.
answer
somewhat less than
question
If MPC is 0.75, then the simple multiplier is __________ .
answer
4
question
The __________ curve was the rationale for an effective 25 percent decrease in tax rates during the Reagan Administration of the 1980's.
answer
Laffer
question
Nondiscretionary fiscal policy or built-in stabilizers automatically _____________ government spending (G) during inflations.
answer
decrease
question
Political leaders may propose _______ policy to aid their own political interest by promoting the upside of the business cycle to coincide with an election.
answer
fiscal
question
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.
answer
400
question
There is often a moderate amount of ___________ with fiscal policy because many variables can be changing at one time.
answer
risk and uncertainty
question
________ based economies typically have higher tax rates than market-based economies because their governments provide more goods and services such as nationalized medical care.
answer
socialist
question
The Employment Act of 1946 was passed by Congress for government to accept _________ responsibility for promoting full employment and price stability.
answer
some
question
Increases in G will increase the economy's GDP by causing a(n) ________ in the AD.
answer
injection and right shift
question
The amount of a decrease in T _______ all go to an increase in Consumption spending because of the MPC effect.
answer
does not
question
Decreases in T will increase the economy's GDP by causing a(n) ________ in the AD
answer
injection and right shift
question
If a deficit increased from -$100 billion to -$400 billion, fiscal policy would be considered __________.
answer
expansionary
question
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.
answer
800
question
The basic applications of fiscal policy relates to ___________ Theory.
answer
Keynesian
question
In the middle of this decade China owned over $1 trillion (about _____ %) of the American national debt.
answer
10