Manley Unit 3

Keynesian Theory assumptions are shown in the AS/AD graph below. Because there is no unused capacity in Stage _____, if Government spending increases then AD increases (in theory) will result only in rising prices. (Check all that apply) 1 2 3 None of these are correct

3

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.

400

If MPC is 0.8, then the multiplier is _____. 2 8 5 4 none of these choices are correct

5

Assuming no change in government spending, an increase in taxes of $100 billion with an MPC of 0.90 will subtract a total of $_____________ billion from the economy after the multiplier effect. 80 200 400 900 none of these choices are correct

900

Check all of the following that are true. the labor force participation rate fell to its lowest point since the late 1970s by the end of the Obama administration the labor force participation rate stopped falling under the administration of President Trump and leveled off at 2015 levels under the Tax Cuts and Jobs Act of 2017, the personal income tax cuts were across-the-board, standard deductions were nearly doubled, and the Obamacare tax for not purchasing health insurance was repealed Reversing the Keyesian policies of the previous administration, the Trump administration raised personal and corporate taxes under the Tax Cuts and Jobs Act of 2017 and increased a record number of regulations

???

Adam Smith's demand-side economics is the idea that an economy with less government restriction serves people best for allowing free allocation of resources. True False

False

Aggregate Demand (AD) is the total demand at various GDP levels for goods and services within the economy. True False

False

If there is unused capacity, the government can stimulate an increase in AD to move the economy further away from full employment. True False

False

Imports are an injection in the Keynesian bathtub. True False

False

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 inflation. True False

False

Keynesian phase of the As curve is the vertical portion. True False

False

Monetarism is a revised form of Keynesian theory emphasizing the appropriate growth of the money supply. True False

False

Most economists believe the New Deal helped bring the US out of the Great Depression. True False

False

The United States experienced a mild recession in 2008 caused largely by the bust of the "dot-com" bubble True False

False

Through _________ policy, the federal government is capable of counterbalancing recession or inflation to some extent through changing tax rates and spending, but there will be some uncertainties and risks. fiscal none of these choices are correct physical monetary

Fiscal

Check all of the following that pertain to fiscal policy. Government Spending Steven Manley counter-cyclical policies tax revenue

Government Spending counter-cyclical policies

In the Great Depression, businesses lost their confidence in the economy and did not spend enough on Investment to return Savings into the flow even though interest rates were lower. True False

True

Once financial institutions started collapsing in the fall of 2008, the Bush Administration was faced with a choice: it could have let the banks suffer the consequences of their risky loans by letting them fail, or it could intervene with a taxpayer-funded bailout True False

True

Ronald Reagan said, "In this present crisis, government is not the solution...Government is the problem." True False

True

The only two things people can do with their income in spend it or save it. True False

True

Check all of the following that are true. Critics of the War on Poverty argue that the welfare state does not encourage government dependency a brief but significant drop in illegitimacy for whites, Asians, and blacks corresponds to the 1996 welfare reform signed into law by President Clinton, who claimed it "ended welfare as we know it" by adding a work requirement to receive benefits the War on Poverty has cost more than $2 trillion as of 2019 the percentage of children born out of wedlock rose dramatically following the onset of the Great Society, for white and Hispanic children but especially in the black community

a brief but significant drop in illegitimacy for whites, Asians, and blacks corresponds to the 1996 welfare reform signed into law by President Clinton, who claimed it "ended welfare as we know it" by adding a work requirement to receive benefits the percentage of children born out of wedlock rose dramatically following the onset of the Great Society, for white and Hispanic children but especially in the black community

Keynes responded to the "crowding out" criticism by saying that government deficits are appropriate in a depression because there is no motivation for business to borrow and spend __________ in this situation. on equipment and inventories on investment on savings all of the choices are correct

all of the choices are correct

Check all of the following that are advantages of fiscal policy. always fixes the economic problem can target specific groups or different parts of the economy may alleviate the economic problem makes Steven Manley happy.

can target specific groups or different parts of the economy may alleviate the economic problem

Check all of the following that are true regarding the "Great Recession" and recovery. greater government intervention into the economy was the hallmark of the incoming Obama administration and its "stimulus" package that passed through Congress in February 2009 economists suggest that, for such a stimulus to work effectively, it must timely, targeted, and temporary although it included temporary payroll tax cuts, most of the "stimulus" package's $831 billion was focused on government spending and therefore represented a Classical approach to countering a recession following the enactment of the stimulus package, the unemployment rate continued to rise, not only surpassing the eight percent estimate of the administration, but staying above eight percent for 43 consecutive months until late 2012

greater government intervention into the economy was the hallmark of the incoming Obama administration and its "stimulus" package that passed through Congress in February 2009 economists suggest that, for such a stimulus to work effectively, it must timely, targeted, and temporary following the enactment of the stimulus package, the unemployment rate continued to rise, not only surpassing the eight percent estimate of the administration, but staying above eight percent for 43 consecutive months until late 2012

Nondiscretionary fiscal policy or built-in stabilizers automatically _____________ government spending (G) during recessions. stabilize increase decrease none of these choices are correct

increase

Unemployment benefits, welfare, and some subsidies automatically ___________ in a recession. stabilize increase decrease none of these choices are correct

increase

Making the perfect decisions for fiscal policy would require _____. (Check all that apply) knowing fully all the current information correctly determining the amount of fiscal policy change changing the money supply by the correct amount correctly determining the timing of implementation

knowing fully all the current information correctly determining the amount of fiscal policy change correctly determining the timing of implementation

Decreases in G will decrease the economy's GDP by causing a(n) ________ in the AD. leakage and shift right leakage and shift left injection and shift left injection and shift right

leakage and shift left

Increases in T will reduce the economy's GDP by causing a(n) ________ in the AD. leakage and shift right leakage and shift left injection and shift right injection and shift left

leakage and shift left

Check all of the following that are characteristic of Keynesian theory. Jean-Baptiste Say less extreme form of Soviet Communism Barack Obama FDR and his "New Deal" inflexible wage and prices Sticky wages

less extreme form of Soviet Communism Barack Obama FDR and his "New Deal" inflexible wage and prices Sticky wages

Check all of the following non-income determinants of economic activity according to Keynes. education and training of workers higher taxes larger deficits level of personal debt value of assets held by individuals expectations of job losses or income gains

level of personal debt value of assets held by individuals expectations of job losses or income gains

Check all of the following that are supply-side factors of economic growth. lower taxes less government regulation free trade availability of savings for investment

lower taxes less government regulation free trade availability of savings for investment

Check all of the following that are supply-side factors of economic growth. lower worker productivity higher taxes increased input costs, such as gasoline more resources available

more resources available

Critics of active fiscal policy argue that when funds are borrowed to finance a deficit, those savings could have been used in the private sector, thereby ____________ private expansion in favor of the public sector. crowding in none of these choices are correct monetizing stimulating

none of these choices are correct

_________ is the total of the ________ still financed by government borrowing since the beginning of the nation in 1776. deficits; debts Monetary policies; Federal Reserve's policies Contractions; business cycles none of these choices are correct

none of these choices are correct

One reason that wages and prices are not very flexible to the downside is that labor is _____________ replaceable in the production process. never immediately not immediately fully

not immediately

In the "crowding out effect" borrowing by government will cause interest rates to rise and savings to be given to government rather than the ________ sector. (Check all that apply) foreign private public banking

private

Check all of the following that are true about the financial crisis of 2008 and 2009. the TARP bailout was a better example of socialism than capitalism An example of monetary policy, TARP was $700 billion worth of taxpayer money lent to the banks to prevent more of them from collapsing Even though President Bush's first inclination was to let the banks fail (which would have been the capitalistic approach), the argument was made that the banks were "too big to fail" since their collapse would have had severe consequences for the whole economy Less government intervention into the economy was the hallmark of the incoming Obama administration and its "stimulus" package that passed through Congress in February 2009

the TARP bailout was a better example of socialism than capitalism. Even though President Bush's first inclination was to let the banks fail (which would have been the capitalistic approach), the argument was made that the banks were "too big to fail" since their collapse would have had severe consequences for the whole economy

Check all of the following that are true. the poverty rate was already declining prior to LBJ's expansion of the welfare state, falling from 32.2 percent in 1950 to 17.3 percent in 1965, the first year the War on Poverty was implemented the poverty rate was increasing prior to LBJ's expansion of the welfare state, rising to 32.2 percent in 1965 from 17.3 percent in 1950, the first year the War on Poverty was implemented the poverty rate rose and has since basically hovered around 14 percent ever since even though welfare spending has drastically increased over the same period Following the onset of the War on Poverty the poverty rate declined from roughly 19 percent to just over 11 percent in the late 1970s

the poverty rate was already declining prior to LBJ's expansion of the welfare state, falling from 32.2 percent in 1950 to 17.3 percent in 1965, the first year the War on Poverty was implemented the poverty rate rose and has since basically hovered around 14 percent ever since even though welfare spending has drastically increased over the same period Following the onset of the War on Poverty the poverty rate declined from roughly 19 percent to just over 11 percent in the late 1970s

Check all of the following that are true. viewed by many economists as a successful reform, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 implemented new work requirements for welfare recipients and a five-year limit on benefits President Trump in 2018 signed an executive order that ordered departmental secretaries to review their existing welfare programs and propose new regulations that would create new work requirements for welfare recipients the push for Welfare Reform led to the law signed by President Clinton in 1996 critics of the welfare state believe it actually creates a perverse incentive to not get married because single parents receive more government transfer payments than do those who are married

viewed by many economists as a successful reform, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 implemented new work requirements for welfare recipients and a five-year limit on benefits President Trump in 2018 signed an executive order that ordered departmental secretaries to review their existing welfare programs and propose new regulations that would create new work requirements for welfare recipients the push for Welfare Reform led to the law signed by President Clinton in 1996 critics of the welfare state believe it actually creates a perverse incentive to not get married because single parents receive more government transfer payments than do those who are married

Check each of the following that apply to the Classical theory. Became popular following "The General Theory" in 1936 was advocated for by Milton Friedman was advocated for by Adam Smith no self-correcting economy has a horizontal AS curve supply-side economics Say's Law

was advocated for by Milton Friedman was advocated for by Adam Smith supply-side economics Say's Law

Check all of the following that are true about the response to the financial crisis of 2009. with unemployment rising over the previous year to 7.6 percent, Obama asserted that the American Recovery and Reinvestment Act (ARRA) was necessary because the government "was the only entity left with the resources needed to jolt our economy" back to life although it included temporary payroll tax cuts, most of the package's $831 billion was focused on government spending and therefore represented a Classical approach to countering a recession following the enactment of the stimulus package, the unemployment rate continued to rise, not only surpassing the eight percent estimate of the administration, but staying above eight percent for 43 consecutive months until late 2012 greater government intervention into the economy was the hallmark of the incoming Obama administration and its "stimulus" package that passed through Congress in February 2009

with unemployment rising over the previous year to 7.6 percent, Obama asserted that the American Recovery and Reinvestment Act (ARRA) was necessary because the government "was the only entity left with the resources needed to jolt our economy" back to life following the enactment of the stimulus package, the unemployment rate continued to rise, not only surpassing the eight percent estimate of the administration, but staying above eight percent for 43 consecutive months until late 2012 greater government intervention into the economy was the hallmark of the incoming Obama administration and its "stimulus" package that passed through Congress in February 2009

With the continuation of the Great Depression in the 1930's ______________ explanations of economic activity began to be widely studied. (Check all that apply) Adam Smith's John Keynes' David Ricardo's Thomas Malthus'

John Keynes'

Check all of the following that pertain to fiscal policy. Federal Reserve Tax rates Tax revenue President and Congress government regulations

Tax rates President and Congress

Check all of the following that are true. The "Great Recession" occurred from December 2007 through June 2009 and followed the boom and bust in the housing market The unemployment rate in April 2020 reached the highest rate ever recorded in the U.S. at 43 percent The "Great Recession" occurred following the bust in the tech bubble in the early 2000s Unemployment is the major problem in an inflationary economy

The "Great Recession" occurred from December 2007 through June 2009 and followed the boom and bust in the housing market

Monetarism is a revised form of the classical theory proposing the appropriate growth of the money supply is equal to the growth rate of Real GDP. True False

True

Perverse incentives, critics argue, lead to unintended and undesirable results contrary to the good intentions of the policymakers who create such programs True False

True

If income increases from $20,000 to $30,000 and $9,000 of the new income is spent on consumption, then the MPC is ___________. (Check all that apply) 0.5 0.6 0.8 0.9

0.9

If income increases from $20,000 to $30,000 and $9,000 of the new income is spent on consumption, then the MPC is ___________. (Check all that apply) 0.6 0.9 0.8 0.5

0.9

If MPC is 0.9, then the simple multiplier is __________ .

10

With an MPC of .9, an initial increase of government spending of $10 billion leads to a total increase of $___ billion.

100

With an MPC of .95, the multiplier is ___.

20

With an MPS of .25, an initial increase of taxes of $10 billion leads to a total decrease of $___billion in income.

40

Please match the following terms with their examples. A. income increases from $20,000 to $30,000 and $1,000 of the new income is saved (but a total of $6,000 of the $30,000 is saved), then the MPC is ___________. B. If income increases from $20,000 to $30,000 and $1,000 of the new income is saved (but a total of $6,000 of the $30,000 is saved), then the MPS is ___________. C. If income increases from $20,000 to $30,000 and $1,000 of the new income is saved (but a total of $6,000 of the $30,000 is saved), then the APC is ___________. D. If income increases from $20,000 to $30,000 and $1,000 of the new income is saved (but a total of $6,000 of the $30,000 is saved), then the APS is ___________. 0.9 0.1 0.8 0.2

A. 0.9 B. 0.1 C. 0.8 D. 0.2

Please match the following terms with their definitions. A. the percentage of the extra income that is saved B. the percentage of the extra income that is spent C. the percentage of the all income that is saved D. the percentage of the all income that is spent MPS MPC APS APC

A. MPS B. MPC C. APS D. APC

Check all of the following that are true about the financial crisis of 2008. Beginning in the 1990s, the federal government began to pressure banks to make loans to potential homebuyers many borrowers were not even required to give a down payment The FDIC and the Department of the Treasury, two government-sponsored enterprises, loaned out vast amounts of money to help more and more Americans buy a home many sub-prime mortgages were especially risky to banks because many times the borrower did not have to prove a steady income to qualify for the loan

Beginning in the 1990s, the federal government began to pressure banks to make loans to potential homebuyers many sub-prime mortgages were especially risky to banks because many times the borrower did not have to prove a steady income to qualify for the loan many borrowers were not even required to give a down payment

Check all of the following that pertain to fiscal policy. Decreasing T and increasing G in a recession inherently a Keynesian idea Increasing T and decreasing G in an overheated economy must be voted on by Congress and approved by president

Decreasing T and increasing G in a recession inherently a Keynesian idea Increasing T and decreasing G in an overheated economy must be voted on by Congress and approved by president

If Savings = Investment, the economy must be in a recession. True False

False

Check all of the following that pertain to fiscal policy. Increasing T and G in a recession Increasing T and decreasing G in a recession Increasing T and decreasing G in an overheated economy Decreasing T and G in a recession

Increasing T and decreasing G in an overheated economy

Check all of the following that are characteristic of Keynesian theory. Adam Smith John Maynard Keynes "The General Theory" in 1936 supply-side economics Say's Law need for government intervention Ronald Reagan

John Maynard Keynes "The General Theory" in 1936 need for government intervention

After World War II ___________ Theory became the accepted norm in the U.S. and this encouraged government to assume an active role in managing the economy. (Check all that apply) Classical Kaynesian Monetarist demand-side

Kaynesian demand-side

The multiplier factor is given by 1 divided by the ________ or similarly 1 divided by 1-MPC. APC APC MPS MPC

MPS

The Employment Act of 1946 was passed by Congress for government to accept _________ responsibility for promoting full employment and price stability. some none of these choices are correct no total

Some

The Employment Act of 1946 was passed by Congress for government to accept _________ responsibility for promoting full employment and price stability. total none of these choices are correct no some

Some

In the Classical Theory if Aggregate Demand increases only an increase in the price level is possible since the assumption is for a constant level of full employment. True False

True

Barack Obama said that the government is the only entity left that can help the economy recover from a recession. True False

True

Barack Obama's administration has increased the national debt more than any other in US history (in absolute terms). True False

True

Even though President Bush's first inclination was to let the banks fail in the fall of 2008 (which would have been the capitalistic approach), the argument was made that the banks were "too big to fail" since their collapse would have had severe consequences for the whole economy True False

True

Excessive speculation following the extreme growth in the use and adoption of the internet in the late 1990s inflated the dot-com bubble, also known as the tech or Internet bubble True False

True

If Investment > savings, this leads to a growth impact True False

True

Check all of the following that apply to fiscal policy. assumption is that the economy self-corrects advocates expansionary policies in recessions advocates for contractionary policies in overheated economies sometimes can lead to a larger budget deficit

advocates expansionary policies in recessions advocates for contractionary policies in overheated economies sometimes can lead to a larger budget deficit

Check each of the following that apply to the Classical theory. became popular in America in 1776 had renewed popularity during the 1930s inflexible wages, interest rates, and prices savings doesn't necessarily equal investment need government to increase AD has sticky wages

became popular in America in 1776

__________________is the action of government to adjust spending and/or taxation to combat recession or inflation. countercyclical monetary policy the policy of truth countercyclical fiscal policy none of these choices are correct

countercyclical fiscal policy

Conservatives prefer to ____________ to stimulate the economy during a recessionary gap (less than full employment and output). decrease G increase G decrease T increase T

decrease T

Check each of the following that apply to the Classical theory. economy reverts back to full employment level of Real GDP Say's Law popularity diminished during the 1930's was revived in the 1930's via Milton Friedman's ideas regarding Monetarism favors increasing AD than AS doesn't view the crowding-out effect as important was followed by President Reagan

economy reverts back to full employment level of Real GDP Say's Law popularity diminished during the 1930's was followed by President Reagan

The water level in the Classical bathtub refers to ____ (check all that apply) consumption savings employment and income investment output

employment and income output

If a deficit increased from -$100 billion to -$400 billion, fiscal policy would be considered __________. contractionary expansionary tightening none of these choices are correct

expansionary

Political leaders may propose _______ policy to aid their own political interest by promoting the upside of the business cycle to coincide with an election. none of these choices are correct monetary fiscal foreign

fiscal

The dynamics of a ___________ interest rate will eliminate excess savings and ____________ prices and wages will maintain constant consumption. fixed politically-determined flexible none of these choices are correct

flexible

Check each of the following that apply to the Classical theory. sticky wages flexible wages, interest rates, and prices Adam Smith John Maynard Keynes self-correcting economy vertical AS curve

flexible wages, interest rates, and prices Adam Smith self-correcting economy vertical AS curve

Check all of the following that are characteristic of Keynesian theory. became popular in 1776 "Wealth of Nations" Say's Law Milton Friedman Monetarism horizontal portion of AS curve

horizontal portion of AS curve

The AD curve slopes downward due to the ____ (check all that apply) substitution effect income effect international effect interest rate effect

income effect international effect interest rate effect

Check each of the following that apply to the Classical theory. increase AS increases in AD follow increases in AS vertical portion of AS curve Laissez-faire has Consumption and Investment as only injections Savings = Investment

increase AS increases in AD follow increases in AS vertical portion of AS curve Laissez-faire has Consumption and Investment as only injections Savings = Investment

Check all of the following that are supply-side arguments for reducing tax rates. increases in AS increases in incentives to work more an expanded tax base eventually an increase in tax revenue

increases in AS increases in incentives to work more an expanded tax base eventually an increase in tax revenue

______ are the reasons that wages are not very flexible to the downside. (Check all that apply) price floors in the labor market price ceilings in the labor market labor unions labor contracts non-discretionary spending entitlements

labor contracts price floors in the labor market labor unions

Check all that apply to the Obama presidency. national debt increased from approximately $10 trillion to more about $20 trillion number in poverty risen from 37 million to around 44 million food stamps increased from 29 million to around 44 million drop in labor force participation to lowest level since 1977 real incomes mostly stagnated debt as a percentage of GDP has risen to highest level since the Truman administration

national debt increased from approximately $10 trillion to more about $20 trillion number in poverty risen from 37 million to around 44 million food stamps increased from 29 million to around 44 million drop in labor force participation to lowest level since 1977 real incomes mostly stagnated debt as a percentage of GDP has risen to highest level since the Truman administration

Aggregate Demand (AD) consists of spending for Consumption, ____________, Government, and Net Exports. (Check all that apply) Income Imports Inventory none of these are correct

none of these are correct

Check all of the following that are disadvantages of fiscal policy. recognition lag legislative lag effectiveness lag may worsen the problem can lead to larger deficits can crowd-out private sector spending

recognition lag legislative lag effectiveness lag may worsen the problem can lead to larger deficits can crowd-out private sector spending

Check all of the following that may cause savings to not equal investment according to Keynes. savings for deferred transactions anger at Steven Manley for his overwhelming masculinity savings set aside for speculation savings for precautionary reasons

savings for deferred transactions savings set aside for speculation savings for precautionary reasons

With Savings __________ being equal to Investment according to Keynes, the resulting impact on Aggregate Demand creates changes in economic activity. always never seldom almost always

seldom

Check all of the following that are characteristic of Keynesian theory. sticky wages popularity grew in the 1970's horizontal portion of AS curve focus on increasing AD savings not necessarily equal to investment Bathtub injections include C, I, G, and exports

sticky wages horizontal portion of AS curve focus on increasing AD savings not necessarily equal to investment Bathtub injections include C, I, G, and exports

Check all of the following that are supply-side factors of economic growth. increased government regulations technology education and training of workers higher business taxes the number of workers amount and quality of capital

technology education and training of workers the number of workers amount and quality of capital

When AS is greater than AD, savings will be greater than investment and economic activity will decline. True False

False