amftestecon

Question 1

what are weaknesses to a free market?

Answer 1

production instability, price instability, and ajustment costs, informational problems like uncalcualted costs or benefits of exchange, inevitable distribution of wealth and economic virtue

Question 2

what is production instability? why is it a problem in the market?

Answer 2

ideal is full and expanding use of the resources of the economy in productive activity.
-production exceeds demand, an at other times production fails to keep up with demand

Question 3

what is a recession?

Answer 3

• occurs whenever the actual output of the economy falls below the level it could meet by employing all resources fully
• two consecutive quarters of decling GDP.

Question 4

is unemployment considered a recession?

Answer 4

yes

Question 5

what is a depression?

Answer 5

• a more severe recession

- unemployments rates over 10%

Question 6

what else can recession result from?

Answer 6

-supply side shocks

Question 7

what is inflation?

Answer 7

increase in the average of all prices

-during periods of inflation the purchasing power of money declines (each dollar buys less stuff)

Question 8

what is deflation?

Answer 8

• declining prices

- the value of money during a period of deflation acyually increases because each dollar buys more

Question 9

when does long term inflation normally occur?

Answer 9

• when the money supply grows faster than production goods and services

Question 10

what is a common measure of inflation?

Answer 10

CPI consumer price index

Question 11

what is CPI?

Answer 11

based on a survey of the price of goods consumers purchase regulary

Question 12

what are creditors?

Answer 12

-those that loan money like banks lose money in inflation

Question 13

what are savers?

Answer 13

• money holders
• lose money in inflation becausse interest rate paid to savers does not keep pace with the growth of inflation and the value of mney they are saving declines

Question 14

what are debtors?

Answer 14

-borrow money like real estate

Question 15

why does the government win durign inflation?

Answer 15

-government is probally single largest borrower in the economy

Question 16

how is government invloved in the economy?

Answer 16

• vital role in in providing medium exchange and controlling the value of the money it creates
• created federal reserve
• have policy responses like fiscal and monetary policy

Question 17

why was the federal reserve created?

Answer 17

as an alternative to having the money supply controlled by private banks on “wall street” whose motives might diverge from the people on “main street”

Question 18

what is fiscal policy?

Answer 18

• government taxing and spending designed to shape demand

- if policymakers anticipate a decline in demand, they can use the power of the public purse of offset that decline.

Question 19

what is fiscal policy controlled by?

Answer 19

congress and president meaning they have to cooperate with each other

Question 20

who argued in 1930s that times of recession decreasing prices do not encourage more consumption by the public predicted by smiths law of supply and demand?

Answer 20

maynard keynes

Question 21

what did keynes argue?

Answer 21

• encouraged more production

- in those times a government should use its borrowing and spending power to increase demand and encourage production

Question 22

what are the risks in using fiscal policy?

Answer 22

• produce a budget deficit
• difficult to rein in a inflationary economy
• always subject to political struggles about the distribution of costs and benefits, since it emerges from the represenative legislature

Question 23

what is monetary policy?

Answer 23

-governments efforts to regulate money supply (currency and other ways of paying IOU’s, credit)

Question 24

who controls monetary policy?

Answer 24

federal reserve

Question 25

what are federal reserves tools to influence money supply?

Answer 25

- influence interest rates as the rates charge to banks to borrow money from the federal reserve - regylate the money supply through the buying and selling of government securities which takes the amount of money in the money supply and when it buys securities it increases the amount of money in money supply - change reserve requirements for banks - print currency

Question 26

what is the paradox of thrift? by justin fox?

Answer 26

were saving more yet were all getting poorer -credited to englishmen john maynard keynes "if we all individually cut our spending in an attempt to increase individual savings then our collective savings wil paradoxically fall because one persions spending is anothers income-the fountain from which savings flow "

Question 27

what were some things reccomended in justin foxes article were made to fix the paradox?

Answer 27

-spend more but people went into debt didnt save enough

Question 28

who makes up the bulk of the population?

Answer 28

savers

Question 29

federal reserve control?

Answer 29

-monetary policy which effects inflation, interest rates | -

Question 30

how does government control fiscal policy?

Answer 30

-budget and tax etc

Question 31

who prints money?

Answer 31

federal reserve

Question 32

the US is good or bad credit risk?

Answer 32

good

Question 33

why worried about accelerating market?

Answer 33

- incline could colapse - spending unwisely and not budgeting - inflation-prices rising to fast - would hurt people who dont have quickly growing income and lender to find right interest rate and buyers and consumers and producers

Question 34

what is sequestration?

Answer 34

-forced cut $85 billion

Question 35

what are risks of fiscal policy?

Answer 35

-big amounts of debts especailly public debt come back to catch them by forigners wont by IOUs until change interest rates and causes interest rates will go up -prices in economy will have inflation -cost of living goes up -if borrowed money then ok but government might have insentive cause of thier debt

Question 36

what policies did not help the great depression?

Answer 36

- contraction of the money supply that contributed to deflation - state regulations that contributed to the closure of thousands of banks - tax hikes intended to make up for falling revenues that instead discourages investment - protectionist trade policy that shrank global commerce

Question 37

what economic facrotrs lead to fragility of the economy in great depression?

Answer 37

- boom in production by farmers and businesses - under consumption on the part of the consumers whose wages may not have kept pace with rising prices - high levels of private debt includling speculation in the stock market often financed by borrowed money. - economic policies

Question 38

how did the people feel about hoover?

Answer 38

-felt he was more interested in helping institutions than the "common people"

Question 39

once was roosevelt was elected who had more seats in the house and senate?

Answer 39

democracts

Question 40

what is the new deal program?

Answer 40

- had principle of keynesian | - used the power of public money and public law to promote relief, recovery,and reform for the people and economy

Question 41

what did the new deal do?

Answer 41

- people accepted governments role as a problem solverm economic stimlator, economic regulator and intervene in economics and safety. - strenghtened the notion of big government in america. New agencys appointed and people found themselves working for government - shaped the future of both parties. deomocrats finding government soluationsand republicans private solutions.

Question 42

unit 8: 1. How are decisions about production and distribution made in traditional, command, and market systems? What role do prices play in a market system?

Answer 42

?command:one thing makes decisions about economy traditional: hunter gatherers and trading market: free exchange of goods and services and laws of supply and demand to determine what is produced and how is should be distributed. - roles prices play in market system

Question 43

unit 8: 2. How productive and wealthy is the US economy?(where do we look for this from? also the typo?) What features of markets help it prosper? What did Adam Smith criticize about mercantilism? Why did he think that he think free trade makes sense for humans and how does it promote productivity?

Answer 43

?

Question 44

what did keynes believe?

Answer 44

- we will fix this for you and expecting government to fix it - advantage he had was

Question 45

what did hayek believe?

Answer 45

- look at a price and if they are dropping peopel dont value it. they need to correct prices in certain sectors. no price intereference - make more competition more meaningful the prices will be - if you have made people relient on cheap credit ten can only succeed as long as cheap credit and ill adapted to real competition - cannot agrantee a true full employment in peopl in resources this way and alter the distribution - keep money supply growing

Question 46

what is not true about poor and richer?

Answer 46

the richer are getting richer faster than poor. BUT the rich is not getting more money than the poor.

Question 47

what is a quintile?

Answer 47

1/5 or 60 million of population

Question 48

does race make a difference in getting into upper class?

Answer 48

yes

Question 49

can tax policy fix inequality?

Answer 49

-taxes do effect how much make and produce | -

Question 50

how progressive is federal tax rates?(graph)

Answer 50

- federal tax rates for greatest is 14% and the poorest get more back from income taxes - socail insurance tax rate is regressive pay more if poor than if rich - income distribution take a lot of wealthys income and poor still have small amount cause of socail securitiy taxes - effect of progressive income tax we boost the share of the forst by 4.8 and take from rich 52.1

Question 51

who is huey long?

Answer 51

- wanted more taxing equality - governor - goes to senate and help FDR win and then supported new deal but then decided to conservative - he criticizes FDR for not taking enough of a stand of economic situation, - raise minimum income - radical