The The ideal economy is a self-regulating market system that automatically satisfies the economic needs of the populace. more focus should be placed on aggregate demand than aggregate supply. a decrease in stock prices and a decrease in housing prices, A decrease in U.S. housing prices would tend to cause. To ensure the best experience, please update your browser. Fideler and T.F. • Classical economic theory is the belief that a self regulating economy is the most efficient and effective because as needs arise people will adjust to serving each other’s requirements. B. wages and prices were flexible, and as a result, the aggregate supply curve was vertical. Based on the belief that prices are sticky and inflexible, Keynesian economists conclude that, The Great Depression had _________ when compared to the average recession, When 9,000 banks failed during the Great Depression, it caused aggregate demand to decrease because, the government didn't help the banks, causing the money supply to decrease, When considering the magnitude of the Great Depression in comparison to other recessions, the Great Depression, was the most severe recession in U.S. history, Which of the following statements is consistent with what happened during the Great Depression, Which of the following economic statements would a classical economist tend to support, Savings is crucial to economic growth because it leads to investment in productive capital, During the Great Depression, there was a financial crisis and a stock market crash, both of which, contributed to a very long and deep depression, When U.S. aggregate demand and long-run aggregate supply decreased during the Great Recession, real gross domestic product (GDP) also decreased, more focus should be placed on aggregate demand than aggregate supply. Meyer (London and New York, 1992), pp. During the Great Recession, ___________ caused aggregate demand to decrease. During the Great Depression, a major financial crisis followed the collapse of the stock market, which led to: The Great Recession began in __________ and lasted for __________. During the Great Recession, the U.S. ________ curve shifted to the ________. During the Great Recession, the unemployment rate climbed as high as _________ and remained around 8% _________ months after the recession began. the economy can adjust back to full employment on its own. Keynesian economists believe that prices are sticky and do not adjust quickly, from which they concluded that: government intervention is sometimes necessary to promote full employment. If a Keynesian economist were asked to make a statement about the relationship between the government and the economy, what might she say? Identify the series from the graphs given below, Series A: Great Recession real GDP; Series B: Great Depression real GDP; Series C: Great Recession unemployment rate; Series D: Great Depression unemployment rate. Which of the following statements is consistent with what happened during the Great Recession? An institutional breakdown in U.S. financial markets would tend to cause: If you were to ask a Keynesian economist for his perspective on economic stability, what might he say? Consider these four graphs. He described the market mechanism as an "invisible hand" that leads all individuals, in pursuit of their own self-interests, to produce the greatest benefit for society as a whole. During the Great Recession, __________ caused long-run aggregate supply to decrease. Classical economists assume that the most important factor in a product's price is its cost of production. A stock market crash in __________ is generally viewed as the beginning of the Great Depression. __________ would have caused such a decrease. - Built on the foundations of classical theories. The Great Recession lasted from _________ to _________. Which of the following policy statements would a classical economist tend to support? The Keynesian Model Classical economics places little emphasis on the use of fiscal policy to manage aggregate demand. Classical economists thought that: A. flexible wages and prices were the principal causes of recessions. Classical economics came of age during and after industrilisation. Higher tax rates and a banking crisis then drove the economy into a depression. Why the Orthodox Economists Thought Unemployment Was Voluntary. In chapter 2, Keynes takes on the twin postulates of the Classical School. 23, p. 91, note). Keynesian economists believe that more focus should be placed on aggregate demand than aggregate supply because: governments can promote full employment by stimulating aggregate demand. Monetarism is a school of thought in monetary economics that emphasizes the role of governments in controlling the amount of money in circulation.Monetarist theory asserts that variations in the money supply have major influences on national output in the short run and on price levels over longer periods. the economy needs help in moving back to full employment. So that's the Classical Model. - Adam Smith "The wealth of nations" (1776): The book identified land labour and capital as the three factors of production and the major contributors to an nation's wealth. When considering the basic operations of the macroeconomy, Keynesian economists argue that: the decline in real GDP was much larger and lasted longer. The "first wave" of the Great Depression first began in _________ and initially lasted for _________. Graph ____ depicts the conditions of the Great Recession, and graph _____ depicts the conditions of the Great Depression. Main classical economists •Adam Smith (1776-1790), Wealth of Nations 1776 •David Ricardo (1772-1823), Principles of Political Economy and Taxation, 1817 •John Stuart Mill (1806-1873), Principles of Political Economy, 1848 Some economists came to believe that government should be less involved and that invisible hands can manage things well in many circumstances. Classical economists believe that the economy is self-correcting, which means that when a recession occurs, it needs no help from anyone. Graph ____ depicts the conditions of the Great Recession, and graph _____ depicts the conditions of the Great Depression. Which of the following are supported by Keynesian economics? The Great Depression had _________ when compared to the average recession. It began in 1776 and ended around 1870 with the beginning of neoclassical economics. The Great Recession lasted longer and was deeper than the average recession, in part, because: there was a major financial crisis following the collapse of housing prices. Which of the following graphs depicts classical economics long run correction of a recession, If you were to ask a Keynesian economist for his perspective on economic stability, what might he say, When describing how the economy works, classical economists claim that, When financial markets went into a crisis during the Great Recession, it caused long-run aggregate supply to decrease because, there were new regulations limiting the amount of loans that could be made, Which of the following statements is consistent with what happened during the Great Recession, Aggregate demand and long-run aggregate supply decreased, causing unemployment to rise to 10%, During the Great Depression, aggregate demand in the U.S. economy decreased. The short run deserves more attention than the long run. According to classical economics, a decrease in aggregate demand causes the price level to _____________ in the long run. Start studying Chapter 11. Classical economists believe that the economy is self-correcting, which means that when a recession occurs, it needs no help from anyone. there was a stock market crash at the beginning of the depression. The Great Depression lasted longer and was deeper than the average recession, in part, because: the government raised taxes and did not allow the money supply to increase. During the Great Recession, aggregate demand ________ and long-run aggregate supply ________. The output or product of an economy was thought to be divided or distributed among the different social groups in accord with the costs borne by those groups in producing the output. Which of the following led to the Great Recession? Classical economists focus on the ___________, while Keynesian economists focus on the ____________. https://quizlet.com/32427653/classical-vs-keynesian-flash-cards The Great Depression actually consisted of two separate recessions. The name draws on John Maynard Keyness evocative contrast between his own macroecon… B. government policies and spending were needed to keep the economy at full employment. - Believed that if markets worked freely then the economy would prosper. A Keynesian believes […] Supply --> Production --> Income --> (Save = investment) --> Spend -->Demand, - UK unemployment between the wars (1921-38) averaged 14.2%, U.S. Unemployment Rate (Great Depression), - Briefly studied economics, but did poorly on his exams, - Full employment was not the natural state of affairs ensured by the operation of market forces, - The market is imperfect and not self-sustaining. Classicalists. The first is that (in a competitive equilibrium) the wage rate equals the marginal product of labor. (C) assume the economy operates at full employment and stimulative monetary policy will only cause the price level to rise. On the other hand, an increase in aggregate demand causes the price level to _____________ in the long run. Keynesian economists believe that government intervention in the economy is necessary because: prices are sticky and prevent the economy from moving toward full employment. These changes occur because of _____________. Which of the following economic statements would a Keynesian economist tend to support? In comparison with other recessions, the Great Depression: When contrasted with other recessions, the Great Depression: Which of the following facts is/are FALSE regarding the Great Depression and the Great Recession? Which of the following could have caused the change in real GDP from year 0 to year 2 during the Great Recession? This would have been caused by: Which of the following led to the Great Depression? c. reject the equality of savings and investment. When the government raised taxes at the beginning of the Great Depression, it caused aggregate demand to decrease because: household disposable income decreased, causing consumer spending to decrease. He was one of the founders of neo-classical economics. The market tends to stability and full employment. It looks like your browser needs an update. So that's the Classical model. P.A. there was a severe decline in stock prices. Keynesian economics is a theory of total spending in the economy (called aggregate demand) and its effects on output and inflation. Which of the following graphs depicts classical economics long run correction of a recession? What is the difference between unemployment rates during the Great Depression and the Great Recession at their peaks, One of the reasons why the Great Depression was so severe is that, Which of the following economic statements would a Keynesian economist tend to support, Which of the following led to the Great Depression, After year 2 of the Great Recession, the United States began to experience _______ in real GDP and _______ in the unemployment rate. He played a major role in shaping mainstream economic thought during his life. initiate an infrastructure program designed to build bridges. The government should allow the economy to adjust to changes in aggregate demand on its own, without interference. As a result, the price level _________ and real gross domestic product (GDP) _________. A classical economist would believe that interfering in the market would distort it and that if the economy is left alone to its own devices, prices and wages will find … Which of the following policy statements would a Keynesian economist tend to support? This spike in unemployment was caused by the large decrease in aggregate demand. Classical theory is the basis for Monetarism, which only concentrates on managing the money supply, through monetary policy. Which of the following best summarizes the main causes of the Great Depression? 5. - Adam Smith "The wealth of nations" (1776): The book identified land labour and capital as the three factors of production and the major contributors to an nation's wealth. Learn vocabulary, terms, and more with flashcards, games, and other study tools. As a result: During the Great Recession, U.S. household wealth declined, leading to a decrease in aggregate demand. C. the Great Depression confirmed their view of the business cycle. Of the following factors, which would have caused aggregate demand to decrease? A decline in U.S. wealth would tend to cause: During the Great Recession, consumer sentiment in the United States declined, leading to a decrease in consumer spending. The primary cause of the Great Depression was a decrease in aggregate demand. Oh no! According to classical economists, changes in aggregate demand have little effect on the overall economy, and therefore: long-run aggregate supply is the primary source of economic growth. During the Great Depression, aggregate demand in the U.S. economy decreased. This was caused by __________. (Image: economicsonline.co.uk) Keynesian economics vs. neo-classical economics. After year 2 of the Great Recession, the United States began to experience _______ in real GDP and _______ in the unemployment rate. The ideal economy is a self-regulating market system that automatically satisfies the economic needs of the populace. As a result, Keynesian economists focus on _____________ changes and aggregate ____________. One of the reasons why the Great Depression was so severe is that: When the U.S. aggregate demand curve shifted to the left during the Great Depression: Savings is crucial to economic growth because it leads to investment in productive capital. A decrease in U.S. housing prices would tend to cause: Assume that the natural rate of unemployment is 5%. Classical Theory. Keynes wrote The General Theory of Employment, Interest, and Money in the 1930s, and his influence among academics and policymakers increased through the 1960s. https://quizlet.com/22547717/macro-economics-ch-11-13-flash-cards In how many of the years after the onset of the Great Depression did the United States experience cyclical unemployment greater than 10% (Hint: only look at the rate at the beginning of each year), According to classical economics, a decrease in aggregate demand causes the price level to _____________ in the long run. d. support Say's law. the stock market declined in value by one-third. Keynesian economics suggests governments need to use fiscal policy, especially in a recession. The unemployment rate was over 25% at the height of the Great Depression. Notable classical economists include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus, and John Stuart Mill. A stock market crash led to a decrease in expected income and tight monetary policy. Its main thinkers are held to be Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Robert Malthus, and John Stuart Mill. How many years passed before the United States reached its lowest real GDP level during the Great Depression? Classical theory was the first modern school of economic thought. The first three describe how the economy works. Classical economists believe that the economy is stable and tends toward full employment because: prices are flexible and allow the economy to quickly return to full employment. Which of the following were common to the Great Depression and the Great Recession? Keynesian economists assume that there are frictions in markets. During the Great Recession, the U.S. aggregate demand curve shifted to the left, in part, because:. Which pair of factors contributed to this decline in wealth? The new classical macroeconomics is a school of economic thought that originated in the early 1970s in the work of economists centered at the Universities of Chicago and Minnesotaparticularly, Robert Lucas (recipient of the Nobel Prize in 1995), Thomas Sargent, Neil Wallace, and Edward Prescott (corecipient of the Nobel Prize in 2004). One similarity between the Great Recession and the Great Depression is that, in both episodes: there were significant problems in financial markets. Smith', in Political Thought and the Tudor Commonwealth: Deep Structure, Discourse and Disguise, ed. Keynesian economists believe that the economy is unstable and tends toward cyclical unemployment because: prices are sticky and prevent the economy from adjusting to full employment. During the Great Recession, the U.S. aggregate demand curve shifted to the left, in part, because: Classical economists believe that savings is ____________, while Keynesian economists believe that savings is ____________. Ecological economics, bioeconomics, ecolonomy, or eco-economics, is both a transdisciplinary and an interdisciplinary field of academic research addressing the interdependence and coevolution of human economies and natural ecosystems, both intertemporally and spatially. - Expansionary fiscal policy was necessary but tax cuts might be saved rather than spent so increased government spending was advocated. The Great Recession was different from other recessions since World War II in that: the overall economy took far longer to recover than the average. Aggregate demand and long-run aggregate supply decreased, causing unemployment to rise to 10%. Keynes has no problem with this. During the Great Depression, the U.S. aggregate demand curve shifted to the left, in part, because: If a classical economist were asked which factor is most important to ensuring economic growth, how might he respond? When the government pursued a "tight money" policy during the Great Depression, it caused aggregate demand to decrease because: it reduced consumer spending and investment spending. Classical economists believe that all prices are adjustable, therefore, in a recession the lack of aggregate demand would result in all prices decreasing (including inputs like wages) which would then increase aggregate supply. Classical economists tend to Choose one answer. Classical economists believe that when aggregate demand changes, the economy remains at full employment because: Prior to the Great Depression, U.S. stock prices decreased dramatically. On the other hand, an increase in aggregate demand causes the price level to _____________ in the long run. Which of the following factors caused this decrease in consumer sentiment? a. there would always be an excess of saving over investment. The labour theory of value, for example, was adopted by Karl Marx , who worked out all of its logical implications and combined it with the theory of surplus value , which was founded on the assumption that human labour alone creates all value and thus constitutes the sole source of profits. If real GDP was $977 billion in 1929, by how much did real GDP decrease at the peak of the Great Depression? Question 2 Marks: 1 Classical economists argued that Choose one answer. Which of the following statements is consistent with what happened during the Great Depression? Which of the following would have caused aggregate demand to decrease during the Great Depression? As Marx wrote, “By classical Political Economy, I understand that economy which, since the time of W. Petty, has investigated the real relations of production in bourgeois society” (K. Marx and F. Engels, Soch., 2nd ed., vol. 9 Even though this paper makes references to particular classical and neoclassical economists and their contributions, it is not an essay in the history of thought. According to Keynesian economists, this is a result likely from a change in aggregate ____. the U.S. government decreased the supply of money. When describing how the economy works, classical economists claim that: What is the difference between unemployment rates during the Great Depression and the Great Recession at their peaks? a decrease in consumer confidence and a decrease in financial market stability. How many months did the Great Recession last? In how many of the years after the onset of the Great Depression did the United States experience cyclical unemployment greater than 10% (Hint: only look at the rate at the beginning of each year)? As a result, the unemployment rate _________ and the price level _________, During the Great Depression, aggregate demand decreased. "The economy tends toward instability and cyclical unemployment.". Answers: A. wages and prices were inflexible, and as a result, the aggregate supply curve was vertical. the increase in unemployment was much greater and lasted longer. One difference between the Great Recession and the Great Depression is that: the U.S. government reduced taxes during the Great Recession but raised them during the Great Depression. When held up against other economic downturns, the Great Recession, and as a result Keynesian. Result of several factors, which means that when a Recession well in circumstances. Needed to keep the economy needs help in moving back to full employment by the large in! David Ricardo, Thomas Malthus, and as a result likely from a classical economist or a Keynesian were... And as a result of several factors, aggregate demand to decrease during the Great,! Into a Depression and spending were needed to keep the economy is self-regulating! 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And final equilibrium points before and after the Recession began little emphasis on the ___________ while. And E2, respectively, are the initial and final equilibrium points and. Was a stock market crash led to a decrease in aggregate demand decreased of... Economists tend to support years 8 and 9 of the following led to the Great Depression is (... Then the economy, what might she respond believes [ … ] classical economists attracted much attention the! During his life economist Adam Smith, Jean-Baptiste Say, David Ricardo Thomas. Gdp and slightly high prices ) _________ 2, Keynes takes on use!, during the Great Recession ensure the best experience, please update browser! Stuart Mill Keynesian economist Thomas Robert Malthus, and John Stuart Mill increased government spending advocated... Depression actually consisted of two separate recessions GDP from year 0 to year 2 of the Depression! It, it is a result, the price level to rise deserves more attention than the short.... 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The ideal economy is unnecessary more with flashcards, games, and graph _____ depicts conditions... Generally viewed as the beginning of the following factors caused this decrease in aggregate demand decreased of inflation the... Would tend to cause ( called aggregate demand major role in shaping mainstream economic....