Question

1) John Gustav Knut Wicksell (1851-1926)

         a.      was from Sweden.

         b.      suggested that saving will increase, borrowing/investment will decrease, and prices will fall if the “bank rate of interest” is above the so-called natural rate.

         c.       suggested that saving will decrease, borrowing/investment will increase, and prices will rise if the “bank rate of interest” is below the so-called natural rate.

         d.      all of the above.

2) Wicksell theorized that if (because of an economic slowing) prices are falling, “a further reduction in rates of interest cannot be to the advantage of the banks… (as it) may diminish the banks’ margin of profit more than it is likely to increase the extent of their business.” (p. 325)

         a.      This idea lent support to the idea that there is an automatic tendency toward full employment.

         b.      This idea lent support to the idea that government should not involve itself within the economy.

         c.       Both of the above statements are correct.

         d.      None of the above statements is correct.

Answer 1

1) all of the above are true

John Gustav is from Sweden and he stated that

If the natural rate of interest is more than the market rate, investment will be more than savings and there will be a cumulative rise in prices. On the other-hand, if natural rate is less than the market rate, investment will be less than savings and there will be a cumulative fall in prices.

2)the correct answer is option b

This idea lent support to the idea that government should not involve itself within the economy.