keynes: supplying bf dick for us presidents from fdr to nixon

Question 1

basic tenets of keynesian economics

Answer 1

• the private economy may not reach full employment
• government spending can spur the economy into filling the gap

Question 2

reasons why great depression became malthusian nightmare

Answer 2

• investment opportunities dried up after accelerating in 1920s
• consumers decide to decrease spending and repay loans
• nations panicked into protectionism
• federal reserve responded with tighter not looser policies

Question 3

what 2 things did keynes argue against neoclassicalism

Answer 3

• households consume part of their income and save the remainder
• flexible wages and prices support say’s law

Question 4

marginal propensity to consume (mpc)

Answer 4

the part people spend more on when income rises

Question 5

keynesian multiplier

Answer 5

1/[1−MPC] or 1/MPS

Question 6

what does the keynesian multiplier mean

Answer 6

any change in spending causes snowball effect and the ultimate change in national spending far surpasses the initial change

Question 7

why did keynes think investment was much more volatile than household consumption

Answer 7

businessmen do not change their investment plans in response to short-run changes in incomes

Question 8

what should governments do during recessions

Answer 8

allow deficits
(if the government wants a balanced budget, it must either cut spending or raise taxes)

Question 9

take on politicians

Answer 9

politicians could blame the invisible hand and battle the business cycle

Question 10

criticism of keynes from the public choice school

Answer 10

• special interests effectively capture
• they hold good ideas and good policy hostage

Question 11

keynes’ 2 pronged attack on the classical school

Answer 11

• households and businesses save and invest for different reasons (retirement vs. politics)
• workers usually refuse to accept lower nominal wages –> wages and prices take a long time to adjust

Question 12

hayek’s business cycle theory

Answer 12

central banks spark boom –> push interest rates lower than the natural rate –> businesses borrow too much –> economy crashes so we should just leave it alone lol

Question 13

economic stabilizers

Answer 13

• progressive taxes
• unemployment insurance

Question 14

crowding out

Answer 14

increased government spending ultimately decreases private sector spending

Question 15

why is crowding out a problem for keynes

Answer 15

his multiplier doesn’t account for crowding out