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. there was a stock market crash at the beginning of the depression. 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. 23, p. 91, note). the increase in unemployment was much greater and lasted longer. So that's the Classical model. The government should intervene in the economy to promote full employment. - 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 held up against other economic downturns, the Great Depression: During the Great Depression, thousands of U.S. banks failed. The short run deserves more attention than the long run. 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 __________. 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. As a result of several factors, aggregate demand decreased during the Great Depression. 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. On the other hand, an increase in aggregate demand causes the price level to _____________ in the long run. Of the following factors, which would have caused aggregate demand to decrease? The Great Recession is characterized by a decrease in aggregate demand. The government should allow the economy to adjust to changes in aggregate demand on its own, without interference. A stock market crash in __________ is generally viewed as the beginning of the Great Depression. Monetarists and classical economists: (A) assume that stimulative monetary policy will create high levels of GDP without inflation. Meyer (London and New York, 1992), pp. Classicalists. 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. During the Great Depression, aggregate demand decreased. 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. During the Great Recession, long-run aggregate supply decreased. _______ in aggregate demand could allow real GDP and the unemployment rate to continue in their current direction. During the Great Recession, __________ caused long-run aggregate supply to decrease. Advocate roles for government in inducing long-term objectives. Identify which of the following graphs will be drawn by classical and Keynesian economists, respectively, for an economy experiencing a decrease in wealth. a. there would always be an excess of saving over investment. 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. On the other hand, an increase in aggregate demand causes the price level to _____________ in the long run. Keynes wrote The General Theory of Employment, Interest, and Money in the 1930s, and his influence among academics and policymakers increased through the 1960s. more focus should be placed on aggregate demand than aggregate supply. Classical theory was the first modern school of economic thought. The name draws on John Maynard Keyness evocative contrast between his own macroecon… 5. Consider these four graphs. --> New Classical Emphasized on the role of invisible hands. 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. 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. 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.". 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? C. the Great Depression confirmed their view of the business cycle. As a result: During the Great Recession, U.S. household wealth declined, leading to a decrease in aggregate demand. Classical economists tend to Choose one answer. __________ would have caused such a decrease. As a result, Keynesian economists focus on _____________ changes and aggregate ____________. 140-68. Notable classical economists include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus, and John Stuart Mill. Classical economists focus on the ___________, while Keynesian economists focus on the ____________. 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. 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. The Great Depression 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. a decrease in stock prices and a decrease in housing prices, A decrease in U.S. housing prices would tend to cause. the stock market declined in value by one-third. Based on the belief that prices are very flexible, classical economists conclude that: government intervention in the economy is unnecessary. The classical economists were the first to investigate capitalist production; their work laid the foundation for political economy as a science. When considering the basic operations of the macroeconomy, Keynesian economists argue that: the decline in real GDP was much larger and lasted longer. Marshall was probably the most influential economist of his time. d. support Say's law. Which of the following economic statements would a classical economist tend to support? 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. Keynesian economics suggests governments need to use fiscal policy, especially in a recession. - In 1936, John Maynard Keynes published The General Theory Employment, Interest and Money. Which of the following statements is consistent with what happened during the Great Depression? During the Great Recession, the U.S. aggregate demand curve shifted to the left, in part, because:. Classical economists believed investments did not hurt an economy in any way but will actually help because of their fluctuating ability. Which of the following economic statements would a Keynesian economist tend to support? There are contradictions to any theory, but most can agree on the idea that the future expectations of any economy will affect its consumers. Which of the following statements is consistent with what happened during the Great Recession? 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. 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. Which of the following were common to the Great Depression and the Great Recession? 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. Which of the following graphs depicts classical economics long run correction of inflation? 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. - 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 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. 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. How many years passed before the United States reached its lowest real GDP level during the Great Depression? Which of the following best summarizes the main causes of the Great Depression? The Great Depression actually consisted of two separate recessions. 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. He played a major role in shaping mainstream economic thought during his life. Classical economics came of age during and after industrilisation. 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? 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. The Great Recession lasted from _________ to _________. Keynes has no problem with this. The Keynesian Model • 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. P.A. Smith', in Political Thought and the Tudor Commonwealth: Deep Structure, Discourse and Disguise, ed. (C) assume the economy operates at full employment and stimulative monetary policy will only cause the price level to rise. Classical Theory. 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. What Is Classical Economics? Classical economics places little emphasis on the use of fiscal policy to manage aggregate demand. If you asked a classical economist which economic time frame she prioritized, how might she respond? 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 ________. In the 1970s, however, new classical economists such as Robert Lucas, […] 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 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. Which of the following could have caused the change in real GDP from year 0 to year 2 during the Great Recession? 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. 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 ____________. If real GDP was $977 billion in 1929, by how much did real GDP decrease at the peak of the Great Depression? It looks like your browser needs an update. It looks like your browser needs an update. B. wages and prices were flexible, and as a result, the aggregate supply curve was vertical. This was caused by __________. During the 2008-9 Great Recession, the Obama administration proposed several stimulus packages with an aim to recover the economy from the economic crisis. Keynesian economists assume that there are frictions in markets. As a result, the price level _________ and real gross domestic product (GDP) _________. As a result, the unemployment rate _________ and the price level _________, During the Great Depression, aggregate demand decreased. Which school of thought will most likely support the administration's policy prescriptions? Which of the following graphs depicts classical economics long run correction of a recession? It began in 1776 and ended around 1870 with the beginning of neoclassical economics. Oh no! 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. Which of the following policy statements would a Keynesian economist tend to support? - Expansionary fiscal policy was necessary but tax cuts might be saved rather than spent so increased government spending was advocated. Which of the following led to the Great Recession? Classical economists believe that the commodities markets will also always be in equilibrium, due to flexible prices. If the supply is high and there is inadequate demand for it, it is a temporary situation. According to Keynesian economists, prices tend to be ______________. Graph ____ depicts the conditions of the Great Recession, and graph _____ depicts the conditions of the Great Depression. Classical economics was founded by famous economist Adam Smith, and Keynesian economics was founded by economist John Maynard Keynes. 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. Its main thinkers are held to be Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Robert Malthus, and John Stuart Mill. 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 similarity between the Great Recession and the Great Depression is that, in both episodes: there were significant problems in financial markets. c. reject the equality of savings and investment. Classical economists thought that: A. flexible wages and prices were the principal causes of recessions. A stock market crash led to a decrease in expected income and tight monetary policy. Classical economics or classical political economy is a school of thought in economics that flourished, primarily in Britain, in the late 18th and early-to-mid 19th century. The teachings of the classical economists attracted much attention during the mid-19th century. Keynesian economics is a theory of total spending in the economy (called aggregate demand) and its effects on output and inflation. - Built on the foundations of classical theories. During the Great Recession, aggregate demand ________ and long-run aggregate supply ________. The primary cause of the Great Depression was a decrease in aggregate demand. A decrease in U.S. housing prices would tend to cause: Assume that the natural rate of unemployment is 5%. Keynesian economists believe that prolonged recessions are possible because: prices are sticky and do not adjust quickly during economic downturns. These changes occur because of _____________. Keynesian Demand Management (Post World War II), - Phillips Curve trade-off (inflation vs unemployment). initiate an infrastructure program designed to build bridges. Which of the following events would have caused such a decrease, 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, The back-to-back recessions that began in 1929 and ended in 1938 are collectively known as, If a Keynesian economist were asked to make a statement about the relationship between the government and the economy, what might she say, Keynesian economists believe that prolonged recessions are possible because, prices are sticky and do not adjust quickly during economic downturns, During the Great Recession, the U.S. aggregate demand curve shifted to the left, in part, because, The Great Recession was similar to most other recessions since World War II in that, the economy did not return to normal for at least one year, If asked about the basic functioning of the economy, a Keynesian economist would state that, the market tends toward instability and cyclical unemployment, Which of the following best summarizes the main causes of the Great Recession, 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, If you asked a classical economist which economic time frame she prioritized, how might she respond, 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, Assume that the natural rate of unemployment is 5%. The first three describe how the economy works. To ensure the best experience, please update your browser. B. government policies and spending were needed to keep the economy at full employment. During the Great Recession, the unemployment rate climbed as high as _________ and remained around 8% _________ months after the recession began. One similarity between the Great Depression and the Great Recession is that in both cases: there was noticeable stress in financial markets. The "second wave" of the Great Depression began in _________ and lasted for _________. Classical economists believe that savings is crucial for economic growth because: savings leads to investment spending, which increases output. (Image: economicsonline.co.uk) Keynesian economics vs. neo-classical economics. 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)? Fideler and T.F. https://quizlet.com/22547717/macro-economics-ch-11-13-flash-cards 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). According to Keynesian economists, this is a result likely from a change in aggregate ____. 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 … 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. (B) assume that stimulative monetary policy will create high levels of GDP and slightly high prices. Which pair of factors contributed to this decline in wealth? In chapter 2, Keynes takes on the twin postulates of the Classical School. 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. To ensure the best experience, please update your browser. Identify whether the following statement is more likely to come from a classical economist or a Keynesian economist. So that's the Classical Model. 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. When compared to other recessions, the Great Depression: had much larger decreases in real gross domestic product (GDP). He was one of the founders of neo-classical economics. 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. The first is that (in a competitive equilibrium) the wage rate equals the marginal product of labor. 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. 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 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. After year 2 of the Great Recession, the United States began to experience _______ in real GDP and _______ in the unemployment rate. 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. there was a severe decline in stock prices. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Classical economists believe that the economy is self-correcting, which means that when a recession occurs, it needs no help from anyone. 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. Which of the following are supported by Keynesian economics? This would have been caused by: Which of the following led to the Great Depression? During the Great Recession, the U.S. long-run aggregate supply curve shifted to the left, in part, because: there was an institutional breakdown in financial markets. Graph ____ depicts the conditions of the Great Recession, and graph _____ depicts the conditions of the Great Depression. How many months did the Great Recession last? 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? 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. 1. The "first wave" of the Great Depression first began in _________ and initially lasted for _________. a decrease in consumer confidence and a decrease in financial market stability. Classical economists assume that the most important factor in a product's price is its cost of production. 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 would have caused aggregate demand to decrease during the Great Depression? 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? 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. Classical theory is the basis for Monetarism, which only concentrates on managing the money supply, through monetary policy. 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. the economy needs help in moving back to full employment. Aggregate demand and long-run aggregate supply decreased, causing unemployment to rise to 10%. 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. Which of the following policy statements would a classical economist tend to support? The market tends to stability and full employment. 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 _____________ changes and aggregate ____________ John Maynard Keynes U.S. banks failed in 1776 and ended 1870. 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