Exam 11: Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

The prevailing budget philosophy prior to Keynes called for a balanced budget. Keynes argued that the government should not balance its budget but instead have budget deficits during

A balanced budget is present when

Fiscal policy designed to increase aggregate demand during economic downturns and decrease aggregate demand during economic booms is called

The multiplier effect refers to the fact that a change in spending (aggregate demand) will

The Great Depression provided support for Keynes' view that

The Keynesian model provided an explanation for

If the federal government is running a budget deficit,

Automatic stabilizers will shift the government budget toward

If the government increases its spending, which of the following would tend to reduce the size of the multiplier?

Unemployment compensation payments

Keynes rejected the view that lower wages would direct a recessionary economy back to full employment because

When there are few unemployed resources, additional spending will tend to

Prior to the Great Depression, most economists believed that a recessionary downturn would be reversed by

When an economy dips into recession, automatic stabilizers will tend to

Use the figure below to answer the following question(s). Figure 11-3 -Refer to Figure 11-3. When the economy is operating at point a, which of the following will be most likely to happen?

Within the Keynesian model, if the marginal propensity to consume is 0.8, which of the following is true?

When the spending of consumers, businesses, government, and foreigners (net exports) is less than the current level of output, Keynesian analysis indicates that

According to the Keynesian view, if an economy was operating at long-run equilibrium, an increase in government expenditures (holding taxes constant) would

The multiplier principle is important because it

According to the Keynesian view, if policy makers thought the economy was about to fall into a recession, which of the following would be most appropriate?