America's Great Depression - Chapter 2

According to Rothbard, which of the following is NOT a man’s possible allocation of his monetary assets?

• A.

  Spend money on consumption

• B.

  Spend money on investment

• C.

  Increase his money hoard

• D.

  Add to cash balance

What is a Keynesian "Liquidity Trap"?

• A.

  When demand for money is so high that interest rates cannot fall low enough to sufficiently increase investment.

• B.

  When inflation and unemployment both increase at the same time.

• C.

  When the total supply of money in the economy is trapped within a certain range above or below which the central bank cannot increase or decrease it.

• D.

  When the amount owed on a mortgage is greater than the value of the property to which the mortgage is applied.

Keynesians believe that people expect a rise in the rate of interest in a financial crisis and will therefore hoard money instead of purchasing bonds and contributing toward lower rates. This ______  _____ constitutes the “liquidity trap,” and is supposed to indicate the relation between liquidity preference and the interest rate.

According to the Keynesians, what does hoarding reduce?

• A.

  Savings

• B.

  Consumption

• C.

  Investment

• D.

  Consumption and Investment

Upon what does the Keynesian concept of the contrary link between inflation and unemployment rest?

• A.

  The Law of Supply and Demand

• B.

  The Labor Theory of Value

• C.

  The Theory of Wage Cycle

• D.

  The Money Illusion of Labor.

Regarding what specific commodity do Keyensians reject the application of the Law of Supply and Demand?

• A.

  Gold

• B.

  Money

• C.

  Labor

• D.

  Capital

If the supply for labor is the SL-SL line and the demand for labor is DL-DL, what will be the consequence of artificially raising the wage rate from the equilibrium point to A?

• A.

  BC workers will lose their jobs.

• B.

  The SD curve will shift from DL to DS.

• C.

  BE workers will receive higher wages.

• D.

  Workers in the EGH triangle will be unemployed.

What do the Keynesians believe is the primary problem of falling wage rates as it relates to economic growth?

• A.

  Falling wage rates will reduce income tax revenues, thus reducing government spending.

• B.

  Falling wage rates will raise interest rates, thus inhibiting the important housing market.

• C.

  Falling wage rates will reduce consumption in favor of savings.

• D.

  Falling wage rates will increase debt.

How does reducing the hours worked and "spreading the work" tend to prolong unemployment?

• A.

  It reduces the amount of money workers can spend, thus reducing consumption.

• B.

  It reduces the pressure on the price of wages.

• C.

  It makes workers less productive.

• D.

  It reduces inflation, which inherently increases unemployment.