12 - The Great Depression: ( )A) was the springboard for...

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The Great Depression: ( ) A) was the springboard for Keynesian economics. ( ) B) led to a revival of Say's Law. (X) C) caused renewed interest is Austrian economics. ( ) D) caused individuals to demand smaller government. Feedback: Keynesian <CANE-Z-IN> economics became very influential during the Great Depression. The primary components of aggregate demand are: ( ) A) consumption, investment, youth expenditures and exports minus imports. (X) B) health care, education, automobiles and net exports. ( ) C) consumption, investment, government spending and net exports. ( ) D) entertainment, housing, food and, finally, education. Feedback: The four major components of aggregate demand are consumption, investment, government spending, and net exports. Which of the following represent examples of investment spending? ( ) A) The purchase of savings bonds. ( ) B) The purchase of stock. ( ) C) The purchase of modern machines for a local factory. (X) D) All of the above represent examples of investment spending. Feedback: Investment is expenditures on (production of) new plant and equipment (capital) in a given time period. According to Keynesian theory, the purpose of fiscal policy is:
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(X) A) to reduce spending if the economy is operating above full employment. ( ) B) always to stimulate the economy so as to increase short-run employment. ( ) C) always to dampen the economy so as to prevent inflationary episodes. ( ) D) None of the above is true. Feedback: If the economy is operating above full employment, Keynesian theory says to reduce spending. If the economy is operating at a level of total spending that is $100 billion short of that consistent with full employment, the government would have to: ( ) A) increase spending by more than $100 billion to move the economy to full employment because some of the government spending "bleeds off" as economic waste. ( ) B) increase spending by exactly $100 billion. (X) C) increase spending by $100 billion times the multiplier. ( ) D) increase spending by less than $100 billion due to the multiplier effect. Feedback: Because of the multiplier effect, spending would need to increase by less than $100 billion. The macroeconomic term "marginal propensity to consume":
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12 - The Great Depression: ( )A) was the springboard for...

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