As a result, Keynesian economists focus on _____________ changes and aggregate ____________. Classical economics was founded by famous economist Adam Smith, and Keynesian economics was founded by economist John Maynard Keynes. How many years passed before the United States reached its lowest real GDP level during the Great Depression? Note that E1 and E2, respectively, are the initial and final equilibrium points before and after the wealth decrease. Classical economists believe that savings is crucial for economic growth because: savings leads to investment spending, which increases output. The back-to-back recessions that began in 1929 and ended in 1938 are collectively known as: During the Great Recession, a major financial crisis followed the collapse of housing prices, which led to: the decline in the health of many large financial firms and banks. The first three describe how the economy works. The Great Depression actually consisted of two separate recessions. the U.S. government decreased the supply of money. - 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. The government should intervene in the economy to promote full employment. A decrease in U.S. housing prices would tend to cause: Assume that the natural rate of unemployment is 5%. As a result: During the Great Recession, U.S. household wealth declined, leading to a decrease in aggregate demand. During the Great Recession, long-run aggregate supply decreased. 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. Classical economics became popular between the 18 th and the 19 th century and had a lot of precursors such as Adam Smith, Karl Max, Jean-Baptiste Say, among others. Which pair of factors contributed to this decline in wealth? Classical economists focus on the ___________, while Keynesian economists focus on the ____________. These changes occur because of _____________, When the U.S. aggregate demand curve shifted to the left during the Great Depression, Which of the following economic statements would a Keynesian economist tend to support II, The short run deserves more attention than the long run, Classical economists focus on the ___________, while Keynesian economists focus on the ____________, One similarity between the Great Recession and the Great Depression is that, in both episodes, there were significant problems in financial markets, Which of the following policy statements would a classical economist tend to support, The government should allow the economy to adjust to changes in aggregate demand on its own, without interference, During the Great Recession, the U.S. aggregate demand curve shifted to the left, in part, because II, The Great Recession was similar to other recessions since World War II in that, real gross domestic product (GDP) initially declined and then recovered sometime later, 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 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. Oh no! During the Great Recession, the U.S. ________ curve shifted to the ________. Classical economists believe that the commodities markets will also always be in equilibrium, due to flexible prices. The teachings of the classical economists attracted much attention during the mid-19th century. If real GDP was $977 billion at the start of the Great Depression and $13.16 trillion at the start of the Great Recession, then real GDP was _______ in year 7 of the Great Depression and _______ in year 4 of the Great Recession. Keynes has no problem with this. Classical economists believe that the economy is self-correcting, which means that when a recession occurs, it needs no help from anyone. If real GDP was $977 billion in 1929, by how much did real GDP decrease at the peak of the Great Depression? - In 1936, John Maynard Keynes published The General Theory Employment, Interest and Money. 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. A stock market crash in __________ is generally viewed as the beginning of the Great Depression. It began in 1776 and ended around 1870 with the beginning of neoclassical economics. During the Great Depression, aggregate demand in the U.S. economy decreased. As a result, the price level _________ and real gross domestic product (GDP) _________. the increase in unemployment was much greater and lasted longer. Why the Orthodox Economists Thought Unemployment Was Voluntary. The "second wave" of the Great Depression began in _________ and lasted for _________. According to Keynesian economists, prices tend to be ______________. When considering the basic operations of the macroeconomy, Keynesian economists argue that: the decline in real GDP was much larger and lasted longer. The name draws on John Maynard Keyness evocative contrast between his own macroecon… 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. 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. If asked about the basic functioning of the economy, a classical economist would claim that: the market tends toward stability and full employment. A Keynesian economist would have recommended which of the following in year 1 of the Great Depression and the Great Recession? If the supply is high and there is inadequate demand for it, it is a temporary situation. If prompted to describe fundamental beliefs about the economy, a Keynesian economist would state that: more focus should be placed on the short run than the long run. Aggregate demand and long-run aggregate supply decreased, causing unemployment to rise to 10%. P.A. After year 2 of the Great Recession, the United States began to experience _______ in real GDP and _______ in the unemployment rate. Keynesian economists believe that government intervention in the economy is necessary because: prices are sticky and prevent the economy from moving toward 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? Which of the following could have caused the change in real GDP from year 0 to year 2 during the Great Recession? It looks like your browser needs an update. Which of the following economic statements would a classical economist tend to support? Keynes wrote The General Theory of Employment, Interest, and Money in the 1930s, and his influence among academics and policymakers increased through the 1960s. (B) assume that stimulative monetary policy will create high levels of GDP and slightly high prices. 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. there was a stock market crash at the beginning of the depression. Classical theory was the first modern school of economic thought. 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. Graph ____ depicts the conditions of the Great Recession, and graph _____ depicts the conditions of the Great Depression. Although the term has been used (and abused) to describe many things over the years, six principal tenets seem central to Keynesianism. According to classical economics, a decrease in aggregate demand causes the price level to _____________ in the long run. To ensure the best experience, please update your browser. The classical economists were the first to investigate capitalist production; their work laid the foundation for political economy as a science. In chapter 2, Keynes takes on the twin postulates of the Classical School. the economy can adjust back to full employment on its own. Smith', in Political Thought and the Tudor Commonwealth: Deep Structure, Discourse and Disguise, ed. Which of the following statements is consistent with what happened during the Great Depression? C. the Great Depression confirmed their view of the business cycle. As a result, the unemployment rate _________ and the price level _________, During the Great Depression, aggregate demand decreased. New Keynesian economics is the school of thought in modern macroeconomics that evolved from the ideas of John Maynard Keynes. "Government intervention in the economy is sometimes necessary.". Which of the following are supported by Keynesian economics? When U.S. housing prices declined prior to and during the Great Recession, it caused aggregate demand to decrease because: household wealth decreased, causing a decline in consumer spending. the economy needs help in moving back to full employment. Classical economists believe that all prices are adjustable, therefore, in an inflationary period the increased aggregate demand would result in all prices increasing (including inputs like wages) which would then decrease aggregate supply. Keynesian Demand Management (Post World War II), - Phillips Curve trade-off (inflation vs unemployment). Its main thinkers are held to be Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Robert Malthus, and John Stuart Mill. Keynesian economists assume that there are frictions in markets. Consider these four graphs. 140-68. During the Great Recession, __________ caused long-run aggregate supply to decrease. During the Great Recession, the unemployment rate climbed as high as _________ and remained around 8% _________ months after the recession began. Classical economics places little emphasis on the use of fiscal policy to manage aggregate demand. This would have been caused by, When contrasted with other recessions, the Great Depression, If prompted to describe fundamental beliefs about the economy, a Keynesian economist would state that, 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, If real GDP was $977 billion in 1929, by how much did real GDP decrease at the peak of the Great Depression, During the Great Depression, the U.S. aggregate demand curve shifted to the left, in part, because, During the Great Recession, there was a financial crisis, a stock market crash, and a collapse in housing prices, all of which, contributed to a very long and deep recession, During the Great Recession, the U.S. ________ curve shifted to the ________. Notable classical economists include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus, and John Stuart Mill. When stock prices declined during the Great Recession, it caused aggregate demand to decrease because: household wealth decreased, leading to a decline in consumer spending. Which of the following economic statements would a Keynesian economist tend to support? 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)? https://quizlet.com/32427653/classical-vs-keynesian-flash-cards The Great Recession lasted from _________ to _________. d. support Say's law. _______ in aggregate demand could allow real GDP and the unemployment rate to continue in their current direction. Classical economics came of age during and after industrilisation. 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? Which of the following best summarizes the main causes of the Great Recession? Which of the following policy statements would a classical economist tend to support? 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 ____________. Of the following factors, which would have caused aggregate demand to decrease? The government should allow the economy to adjust to changes in aggregate demand on its own, without interference. 5. 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? Graph ____ depicts the conditions of the Great Recession, and graph _____ depicts the conditions of the Great Depression. A Keynesian believes […] 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. Based on the belief that prices are sticky and inflexible, Keynesian economists conclude that: the economy is not self-correcting and can become stuck below full employment. Keynesian economists believe that savings is a drain on demand because: when a recession occurs, households tend to spend less, which only worsens the recession. There are contradictions to any theory, but most can agree on the idea that the future expectations of any economy will affect its consumers. When considering how the economy works, classical economists hold that: the long run is more significant than the short run. Which of the following best summarizes the main causes of the Great Depression? 23, p. 91, note). Classical economists tend to Choose one answer. 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? _______ in aggregate demand could allow real GDP and the unemployment rate to continue in their current direction, The primary cause of the Great Depression was a decrease in aggregate demand. This would have been caused by: Which of the following led to the Great Depression? 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? The first is that (in a competitive equilibrium) the wage rate equals the marginal product of labor. Answers: A. wages and prices were inflexible, and as a result, the aggregate supply curve was vertical. --> New Classical Emphasized on the role of invisible hands. 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. Monetarists and classical economists: (A) assume that stimulative monetary policy will create high levels of GDP without inflation. c. reject the equality of savings and investment. Keynesian economics is a theory of total spending in the economy (called aggregate demand) and its effects on output and inflation. Classical economists assume that the most important factor in a product's price is its cost of production. Higher tax rates and a banking crisis then drove the economy into a depression. Oh no! Classical economists believe that the economy is self-correcting, which means that when a recession occurs, it needs no help from anyone. So that's the Classical Model. The primary cause of the Great Depression was a decrease in aggregate demand. 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. Classical theory is the basis for Monetarism, which only concentrates on managing the money supply, through monetary policy. The collapse of housing prices led to decreased wealth and significant problems in financial markets, as well as a decrease in expected income and a stock market collapse. The main idea of classical economics is that productivity can be increased by allowing the market to function freely and by letting individuals pursue the fulfillment of their own, somehow selfish, interests. Fideler and T.F. He was one of the founders of neo-classical economics. a. there would always be an excess of saving over investment. 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. 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. • 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. - 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. Which of the following policy statements would a Keynesian economist tend to support? Some economists came to believe that government should be less involved and that invisible hands can manage things well in many circumstances. These changes occur because of _____________. Based on the belief that prices are very flexible, classical economists conclude that: government intervention in the economy is unnecessary. One similarity between the Great Recession and the Great Depression is that, in both episodes: there were significant problems in financial markets. Which of the following led to the Great Recession? When compared to other recessions, the Great Depression: had much larger decreases in real gross domestic product (GDP). The According to Keynesian economists, this is a result likely from a change in aggregate ____. Consider these four graphs. During the Great Recession, aggregate demand ________ and long-run aggregate supply ________. 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. The short run deserves more attention than the long run. Chapter 18 quiz Question 1 1 out of 1 points Classical economists believed that: Selected Answer: C. wages and prices were flexible, and as a result, the aggregate supply curve was vertical. When held up against other economic downturns, the Great Depression: During the Great Depression, thousands of U.S. banks failed. The Great Depression is characterized by a decrease in aggregate demand. One factor would be: Classical economists believe that prices are completely flexible, from which they conclude that: the economy is self-correcting in response to shocks. This would tend to cause. a. see unemployment as a persistent economic problem. (Image: economicsonline.co.uk) Keynesian economics vs. neo-classical economics. 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). "The economy tends toward instability and cyclical unemployment.". Classical economists thought that: A. flexible wages and prices were the principal causes of recessions. He played a major role in shaping mainstream economic thought during his life. In regard to the macroeconomy, it is believed by classical economists that: Among the beliefs held by classical economists, one is that: aggregate supply should be a bigger focus than aggregate demand. During the Great Recession, the U.S. aggregate demand curve shifted to the left, in part, because:. Start studying Chapter 11. One similarity between the Great Depression and the Great Recession is that in both cases: there was noticeable stress in financial markets. This spike in unemployment was caused by the large decrease in aggregate demand. 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. The ideal economy is a self-regulating market system that automatically satisfies the economic needs of the populace. During the 2008-9 Great Recession, the Obama administration proposed several stimulus packages with an aim to recover the economy from the economic crisis. 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 The Great Recession is characterized by a decrease in aggregate demand. 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. In the 1970s, however, new classical economists such as Robert Lucas, […] Classical economists believe that government intervention in the economy is unnecessary because: prices are flexible and, therefore, the economy will adjust back to full employment on its own. 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. 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. The Great Depression had _________ when compared to the average recession. Identify whether the following statement is more likely to come from a classical economist or a Keynesian economist. b. believe in Keynesian economics. Classical Theory. 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. This was caused by __________. Identify which of the following graphs will be drawn by classical and Keynesian economists, respectively, for an economy experiencing a decrease in wealth. 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 __________. Learn vocabulary, terms, and more with flashcards, games, and other study tools. 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. On the other hand, an increase in aggregate demand causes the price level to _____________ in the long run. B. wages and prices were flexible, and as a result, the aggregate supply curve was vertical. During the Great Recession, there was a financial crisis, a stock market crash, and a collapse in housing prices, all of which: contributed to a very long and deep recession. 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. Classical economics, English school of economic thought that originated during the late 18th century with Adam Smith and that reached maturity in the works of David Ricardo and John Stuart Mill. It looks like your browser needs an update. So that's the Classical model. Question 2 Marks: 1 Classical economists argued that Choose one answer. 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. 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. a decrease in consumer confidence and a decrease in financial market stability. 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