The cornerstones of Classical theory's faith in the self-healing abilities of market-based economic systems include:
a. rigid prices, interest rates, and wages
b. flexible prices, interest rates, and wages
c. flexible prices, recessionary gaps, and AD shortfalls
d. rigid wages, flexible interest rates, and constant prices
The macro stability condition requires leakages to be equal to injections. Leakages include:
a. Government spending, consumption, and investment
b. Investment, exports, and government spending
c. Savings (by businesses and households), taxes, and imports
d. Savings, government spending, and taxes
Assume the MPC = 0.80. And, assume that the economy suddenly moves away from the stability condition and a recessionary gap emerges. If this initial movement away from full-employment GDP originated via a $200 billion decrease in private sector business investment spending (I), AD will eventually _______ by a cumulative total of _______.
a. decrease; $800 billion
b. increase; $400 billion
c. decrease; $1 trillion
d. increase; $1 trillion
From the Keynesian perspective, recessions are generally the result of:
a. excessive AD
b. insufficient AD
c. excessive regulation
d. insufficient regulation
Supply creates its own demand and therefore events like the Great Depression were largely ruled out by Classical economists. Keynes, however, pointed out that _________ did not necessarily always hold because some agents in the economy might decide to ________ portions of their incomes. If enough individuals did this, significant recessions might emerge and persist.
a. Says Law; spend
b. Says Law; save
c. the law of demand; save
d. the law of supply; spend
