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18 Cards in this Set

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John M. Keynes was able to illustrate how the macro-economy could enter a deep and protracted recession (depression) but he was never able to fully develop a logical explanation of how such a position could achieve "equilibrium" for the economy.
FALSE
The tendency of people save during bad times was in Keynes view problematic and not helpful in efforts to achieve a fast and sustainable recovery from recessionary conditions.
TRUE
The "tax multiplier" is always one greater than the "expansion multiplier."
FALSE
In the "special case" conditions developed by Keynes, the CPI is assumed to be constant.
TRUE
John Maynard Keynes believed that when sales slow for durable goods, the firm producing such good find that they are accumulating inventories above their "planned levels" and therefore would tend to react by laying off workers and not hire them back until the excess inventories were sold -- and in turn, additional income would be lose in other sectors producing a decline in real GDP throughout the macro-economy.
TRUE
The "Y-intersect" of the AE function (aggregate expenditures function) in the Keynesian model will occur at the level of "induced expenditures."
FALSE
Keynes illustrated that in addition to the interest rate being a determinant of the level of household durable goods consumption and business investment, the expectations about future income and sales were equally significant in determining the level of planned spending of both households and firms and therefore the realized level of real GDP.
TRUE
If the MPC is 90 then the "tax multiplier" must be 10.
FALSE
The "balanced budget multiplier" value is equal to 1.
TRUE
According to the balanced budget multiplier concept, if there is $100 billion dollar recession and the Congress and President do not want to wait on a series of "income rounds" to close the recession, the government could increase both taxes and government spending by $100 billion dollars to "close the recessionary gap."
TRUE
Keynes believed that the fiscal options available to government in helping to manage an economy were "tax" and "spend" programs. Futhermore, he viewed the "tax" option as exerting a "direct effect" on the desired objective of economic expansion (or contraction) and the "government spending" option as exerting only an "indirect" or "potential impact" upon macro-economic conditions -- depending ultimately upon the decisions of the private sector and their response to such spending programs.
FALSE
Contractionary fiscal policy involves increasing government purchases or decreasing taxes.
FALSE
Government policy decisions would likely incorporate contractionary fiscal policy to reduce increases in aggregate demand that seem likely to lead to inflation.
TRUE
The closer the economy if to the potential full employment level of GDP -- the less likely there would be any "crowding-out" resulting from government spending programs.
FALSE
The Phillips curve integrated the relationship between the CPI and the unemployment rate in economy and found that in the long-run, the Phillips data indicated the curve would be vertical over the natural rate of unemployment for that economy.
TRUE
The Keynesian range of the LRAS curve for the economy would be horizontal while the classical range of the LRAS would be vertical.
TRUE
The "short-run" Phillips model indicated that there would be a tradeoff between the CPI and the unemployment rate such that -- within the relevant range, as the CPI increases, we would expect to see the unemployment rate falling.
TRUE
Sustainable technological development is important to maintain the rightward advance of the LRAS curve -- an objective that would be consistent with sustaining economic growth and the ability to support population and a reasonable standard of living for the country.
TRUE