What two events undermined the theory that supply creates its own demand?
What will be an ideal response?
First, the Great Depression of the 1930 resulted in a sharp decline in production and high rates of unemployment over a ten-year period. This event was inconsistent with the classical theory that suggests that unemployment is only temporary. Second, John Maynard Keynes developed an aggregate expenditures theory that countered Say’s law and explained why unemployment and under spending can occur in an economy. Keynes’ modern employment theory suggests that the macro economy was inherently unstable and subject to fluctuations in output and employment because of the downward inflexibility of wages and prices and lack of synchronization between investment and saving decisions.
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After calculating net domestic product at factor cost, to calculate GDP using the income approach, in part we must add
A) interest, rent, and profit. B) wages. C) indirect taxes and depreciation. D) net operating surplus. E) subsidies.
During a recession, automatic stabilization causes the government budget deficit to
A) fall. B) increase. C) remain stable. D) move in the same direction as Y.
If we consider the relationship between the opportunity cost of holding money and velocity that existed in the 1980s, if the Fed followed the same policymaking in the 1990s and 2000s, would they have achieved the desired results? Explain.
What will be an ideal response?
An individual buys a bond for $1,000 and sells it one year later for $1,050. What is the annual interest rate return that this individual has received on this bond?
A) 5.0 percent B) 50.0 percent C) 7.5 percent D) 4.0 percent E) 0.05 percent