Week 7: Market for goods and in the financial market Flashcards
(19 cards)
What was the financial crash of 1929 associated with?
Fortunes were lost and a crisis of the real economy emerged
The crisis expanded overseas, leading to high unemployment and social costs.
What percentage of workers suffered from unemployment during the financial crash?
Almost one-third
Many people faced eviction, destitution, and starvation.
What did Keynes believe regarding the capitalist economy’s ability?
It could not be relied upon to mobilize unemployed people
Keynes emphasized the social costs of unemployment.
What solutions did Keynes propose for expanding aggregate demand?
Government should adopt policies to increase public spending
This includes spending on infrastructure like schools and hospitals.
Why was the conversation about Keynesian economics important?
It emerged during a time of economic instability, with fascism gaining traction in Europe
Russia was experiencing full employment and economic growth.
What fiscal policies did Keynes advocate during economic downturns?
Governments should spend more on projects to create jobs and stabilize wages
During booms, they should raise taxes to control inflation.
What was Keynes’ role in the Bretton Woods Conference?
He led the British delegation and helped establish the IMF and World Bank
These institutions were created to ensure global financial stability.
What is the Keynesian multiplier?
An initial increase in spending leads to a greater overall increase in national income and output
One dollar of spending can lead to more than one dollar in economic growth.
What does the IS curve represent?
The goods market, where an increase in interest rates leads to a decrease in output
The IS curve is downward sloping.
What does the LM curve represent?
The financial market, where demand for money depends on income and interest rates
The supply of money is determined by the central bank.
What does the IS-LM model illustrate?
The intersection of goods and financial markets, helping to forecast economic impacts of policy changes
It mainly applies to short-term economic analysis.
What was a key characteristic of the IS-LM model?
It is a static model
Critics argue that important parameters cannot be postulated.
What triggered the 2008 Global Financial Crisis?
The collapse of risky mortgage-backed securities linked to subprime mortgages
This caused massive losses for banks and led to a global recession.
What is the rationale behind austerity measures?
High public debt negatively affects economic growth
Reinhart and Rogoff argue that reducing public spending increases competitiveness.
What is a common mantra associated with Keynesian economics regarding spending?
My spending is your income, my income is your spending
This highlights the interconnectedness of economic activity.
What did Krugman argue about austerity?
He criticized the negative impacts of austerity on economic growth
He suggested that during downturns, fiscal expansion is necessary.
Fill in the blank: Keynes believed that during booms, governments should _______.
raise taxes to control inflation
True or False: The IS-LM model applies primarily to long-term economic analysis.
False
It is primarily applicable to short-term analysis.
Fill in the blank: The Keynesian multiplier shows that an initial increase in spending leads to a greater overall increase in _______.
national income and output
