Econ Topic 9

In contrast with Classical Economics, Keynesian Economics

• relies more heavily on the laws of supply and demand.
• reduces the role of government.
• takes a broader view of the economy.
• more strongly emphasizes the importance of individual businesses.

Why does the Fed rarely change reserve requirements?

• It might force banks to require many borrowers to repay their loans early.
• It might cause the government to default on its debt.
• It could end open market operations.
• It would affect the discount rate.

Jane supports supply-side economics.  What does she believe?

• Demand increases when prices rise.
• Fiscal Policy increases demand.
• Tax cuts cause demand to fall.
• High tax rates slow the economy.

The purpose of expansionary fiscal policy is to

• slow the growth of GDP.
• prevent hyperinflation.
• increase output.
• increase the separation between government and private industry.

Keynesian Economics differed from Classical Economics in which of the following ways?

• It encouraged a laissez-faire approach to the economy.
• It relied on government to maximize economic output in some cases.
• It paid little attention to the impact of policies in the short term.
• It relied on adjustments in monetary policy to impact the economy.

What danger is associated with having a high national debt?

• crowding out
• supply elasticity
• stagflation
• foreign invasion

How can an inflationary economy be stabilized?

• with an expansionary monetary policy
• by cutting taxes
• with a tight monetary policy
• by utilizing the outside lag

What kind of fiscal policy would be the best at keeping the economy stable when incomes are rising?

• tight
• expansionary
• easy
• contractionary

An example of an automatic stabilizer is

• inflation.
• taxes.
• interest rates.
• US savings bonds.

Milton Friedman is most closely associated with which of the following?

• Classical Economics
• Traditional Economics
• Supply-Side Economics
• Keynesian Economics