A Quiz On America's Great Depression

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3. What did many politicians and economists find surprising about 1931?

They expected a Communist revolution.

They expected a deeper contraction.

They expected an economic recovery.

They expected a stock market crash.

4. What does Rothbard describe as the only valid course if the government wishes to alleviate economic depression?

Stabilize prices

Increase government spending

Leave things alone

Support wage rates

5. What is the essence of recession according to the Austrian theory of economics?

A decline in the rate of GDP growth.

A reduction in the size of the national economy.

A readjustment of the economy to eliminate the distortions created during the preceding expansion.

A reduction in the velocity of money.

6. What principle was widely accepted by economists as a means of effectively reducing unemployment in 1930?

Tax cuts.

Public works.

Interest-free home loans.

Subsidy payments.

7. What is the Austrian explanation for the perpetual recurrence of business cycles?

Banks and governments inflate credit when they can.

Seasonal fluctuations systematically introduce instability into the system.

More gold is always being mined and altering the global money supply.

The decreasing marginal utility of investment goods.

8. Why does Rothbard reject the notion that consumer confidence is a cause of business cycles?

Consumption is only one part of GDP.

Business confidence is the primary culprit.

Consumer confidence is derivative, not causal.

Rothbard does not believe in psychology.

9. What is the great similarity between the initial actions of Hoover's RFC and Bush's TARP?

Both organizations were required to in end the economic crisis.

Both organizations refused to disclose their loan actitivies.

Both organizations used the money to acquire auto manufacturers.

Both organizations refused to make loans to banks.

10. What U.S. president launched the first antidepression program
marked by extensive governmental economic planning and
intervention?

Franklin Delano Roosevelt

Herbert Hoover

Woodrow Wilson

Calvin Coolidge

11. What was Herbert Hoover's primary goal in using federal power to fight economic depression?

Reducing the TED spread.

Fighting inflation.

Protecting corporate profits.

Sustaining wage rates

12. In the Introductions, what does Paul Johnson say was the orthodox explanation for the worldwide economic contraction of the 1930s?

The Monetarist theory that the Federal Reserve failed to sufficiently inflate the money supply.

The Keynesian theory that government did too little to rescue the market system from the consequences of its own folly.

The Austrian theory that the Federal Reserve over-inflated the money supply.

The Marxian theory that capitalism had collapsed as a result of its inherent contradictions.

13. What was the result of the depression on commodity prices?

There wasn't one, prices fluctuated normally.

Prices increased dramatically.

Prices decreased dramatically.

Commodities couldn't be obtained at any price.

14. What basic economic concept did Hoover most notably fail to grasp?

The Labor Theory of Value

The Laffer Curve

Marginal Utility

The Law of Supply and Demand

15. How much did Federal spending increase in 1931? (Government enterprises excluded.)

It didn't increase.

8 percent.

17 percent.

42 percent.

16. What two factors kept inflation in check in 1930?

Interest rate increases and gold sales.

Increased federal spending and exports.

Equity price collapse and bank failures.

Housing price declines and reduced mortgage lending.

17. What is the main problem that a theory of depression must explain?

Why is the gross domestic product contracting instead of expanding?

Why is there a sudden general cluster of business errors?

Why is unemployment increasing?

Why is inflation increasing at the same time as unemployment?

18. What was the immediate response of the Federal Reserve to the October 1929 stock crash?

Lowering interest rates by 150 basis points.

Increasing government spending on infrastructure.

Reducing its holdings of government securities.

Taking over the operations of its member banks.

19. What is the basis for the Keynesian criticism of Misean cycle theory's approach to savings and investment?

The Keynesians argue that savings and investment are two entirely separate processes.

The Keynesians argue that savings and investment are identical.

The Keynesians argue that investment should increase as savings decline.

The Keynesians argue that a savings rate in excess of the rate of inflation increases investment in consumer goods.

20. What was the average annual rate of increase in the money supply from 1921 to 1929?

2.5 percent

5.3 percent

7.7 percent

224 percent

21. What is acceptance?

A contract to pay when an equity price falls to a previously agreed level.

A mortgage bank's agreement to a loan restructure to avoid foreclosure.

A leveraged life insurance investment.

A bill sold by borrowers to dealers or banks who in turn sell the bills to the Federal Reserve System.

22. What was considered the most important part of Herbert Hoover's 9-point plan for economic recovery?

Establishing the Public Works Administration to coordinate and expand Federal public works

Establishing the Reconstruction Finance Corporation to lend to banks, industries, and credit agencies.

Federal loans of $300 million to the States.

Bankruptcy law reform.

23. Regarding what specific commodity do Keynesians reject the application of the Law of Supply and Demand?

Gold

Money

Labor

Wheat

24. Why does Rothbard consider consumer loans to be less problematic than other forms of credit?

They are smaller in the aggregate than business financing.

They do not create a boom-bust cycle.

They will evaporate when consumers go bankrupt.

They increase consumer spending and therefore economic growth.

25. How many recessions took place in America during the 1920s?

Zero

One

Two

Three