Question

Question 81 pts

Which of the following would be part of the Keynesian explanation for the Great Depression?

The economy lacks self correction mechanisms.

Income of most Americans didn’t grow fast enough during the 1920s to keep up with production.

The stock market crash in 1929 wiped out a large amount of wealth in the U.S.

All of the above.

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Question 91 pts

In the Keynesian cross or AE graph the 45-degree line is:

all the possible equilibrium points available.

also known as the aggregate expenditures line.

also known as the aggregate demand line.

all of the above.

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Question 101 pts

When there is a contractionary gap the Keynesians recommended cutting taxes and raising government spending.

True

False

Answer 1

Q 81. The correct option is

The economy lacks self correction mechanism.

According to Keynes himself, the deppression might not be able to correct itself automatically, as was expected, due to numerous reasons. The other explaination such as the income factor, was given by monetarist and the crash of stock market was partly monetarist, and partly hybrid view.

Q 91. The correct option is

All the possible equilibrium points available.

It is to be noted that the equilibrium occurs where 45 degree line intersects the AE/AD line, reflecting the fact that it is represents all the possible equilibrium points available.

Q 101. The correct option is

True.

The contractionary gap refers to a situation where the current output is less than the potential output, and in order to increase it, the Keynesians suggest increase in aggregate demand via tax cut and government spending.