Describe basic principle of classical economic theory

Reference no: EM13182891

Which one of the following factors would most likely cause an increase in consumption (i.e., an increase in the amount of current income used for consumption) by the U.S. household?
A. Their expectation that consumer prices would increase more rapidly in the future
B. An increase in income taxes
C. A decrease in stock prices
D. A redistribution of income from younger workers to retired workers.

If a recessionary gap exists
A. equilibrium GDP is equal to full employment (potential) GDP.
B. equilibrium GDP is greater than full employment (potential) GDP
C. aggregate expenditures are less than full employment (potential) aggregate supply.
D. aggregate expenditures are greater than full employment (potential) aggregate supply.
E. aggregate expenditures are equal to full employment (potential) aggregate supply

Which of the following is a basic principle of Classical (pre-Keynesian) economic theory?
A. Saving is always greater than investment.
B. The market economy will automatically eliminate inflation and excessive unemployment.
C. Unemployment may exist for a prolonged period in the market economy.
D. Inflation will occur when excessive demand exists in the economy.
E. Prices and wages are "sticky" in the downward direction.

Which of the following economic indicators would help you determine in what phase of the business cycle the economy is currently functioning?
A. common stock prices
B. the consumer price index
C. industrial production/output
D. new orders for durable goods
E. private housing starts/construction

According to Keynesians the massive unemployment of the 1930s could best be explained by
A. too low an interest rate.
B. too high an inflation rate.
C. too low a wage rate for labor.
D. too much government spending.
E. insufficient aggregate expenditures.

According to Keynesian theory, the most important determinant of personal consumption and
personal saving is the
A. price level.
B. rate of interest.
C. level of income.
D. level of employment.
E. level of government spending.

Suppose a 2050 newspaper report indicates that private housing starts, common stock
prices, and new orders for durable goods have all been increasing for the past two months. From this information you can surmise that the economy
A. will continue in or move into an expansionary phase of the business cycle in the
near future.
B. will continue in or move into a contractionary phase of the business cycle in the
near future.
C. is currently in an expansionary phase of the business cycle.
D. is currently in a contractionary phase of the business cycle.
E. nothing -- these measures tell us nothing about the business cycle.

In the Keynesian model, if aggregate expenditures are greater than output (aggregate supply),
unintentional inventories of business firms will ________, and these business firms can be expected to ________ production in the near future?
A. increase; decrease.
B. increase; increase.
C. decrease; decrease
D. decrease; increase

Some college students work only during the summer months because they feel they cannot work and attend school simultaneously. According to the U.S. labor department, during the school year these students are
A. part of frictional unemployed.
B. not included in the labor force.
C. part of excessive unemployment
D. part of the civilian labor force, but they are just not working.

Which of the following would tend to cause planned gross private domestic investment (Ig) to
increase?
A. Higher stock prices
B. An increase in real wage rates
C. A significant decrease in the real rate of interest
D. An increase in business taxes
E. Both B and D will caused Ig to increase

Reference no: EM13182891

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