Quiz On America's Great Depression By Murray Rothbard!

1. What aspect of the economic situation in the early 1970s created a problem for Keynesian theorists?

Simultaneous inflation and depression.

Stock prices falling as housing costs increased.

A reduction in monetary velocity.

Rising interest rates.

In the early 1970s, Keynesian theorists faced a problem due to the simultaneous occurrence of inflation and depression. This was contradictory to the Keynesian theory, which suggested that inflation and depression were mutually exclusive. According to Keynesian economics, inflation was expected to occur during periods of economic growth and low unemployment, while depression was associated with deflation and high unemployment. The presence of both inflation and depression at the same time challenged the Keynesian belief that government intervention and fiscal policies could effectively stabilize the economy.

Explanation

In the early 1970s, Keynesian theorists faced a problem due to the simultaneous occurrence of inflation and depression. This was contradictory to the Keynesian theory, which suggested that inflation and depression were mutually exclusive. According to Keynesian economics, inflation was expected to occur during periods of economic growth and low unemployment, while depression was associated with deflation and high unemployment. The presence of both inflation and depression at the same time challenged the Keynesian belief that government intervention and fiscal policies could effectively stabilize the economy.

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

A decline in the rate of GDP growth.

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

The inability of consumers to maintain their previous level of spending on consumer goods.

A reduction in the size of the national economy.

According to the Austrian theory of economics, recession is the result of a readjustment of the economy to eliminate the distortions that were created during the expansion phase. This means that during periods of economic growth, certain imbalances and inefficiencies may arise, such as misallocations of resources and excessive debt. A recession is seen as a necessary correction mechanism to realign the economy and eliminate these distortions, allowing for a healthier and more sustainable economic system in the long run.

Explanation

According to the Austrian theory of economics, recession is the result of a readjustment of the economy to eliminate the distortions that were created during the expansion phase. This means that during periods of economic growth, certain imbalances and inefficiencies may arise, such as misallocations of resources and excessive debt. A recession is seen as a necessary correction mechanism to realign the economy and eliminate these distortions, allowing for a healthier and more sustainable economic system in the long run.

3. What word does Paul Johnson use to describe the relationship between the Hoover and Roosevelt administrations' responses to the economic crisis of the 1930s?

A contradiction.

A conundrum.

A continuum.

A coincidence.

Paul Johnson uses the word "continuum" to describe the relationship between the Hoover and Roosevelt administrations' responses to the economic crisis of the 1930s. This suggests that there was a gradual and ongoing progression or flow between the two administrations' approaches, rather than a clear-cut distinction or contradiction.

Explanation

Paul Johnson uses the word "continuum" to describe the relationship between the Hoover and Roosevelt administrations' responses to the economic crisis of the 1930s. This suggests that there was a gradual and ongoing progression or flow between the two administrations' approaches, rather than a clear-cut distinction or contradiction.

4. What advantage of recessions has the government prevention of monetary deflation eliminated?

Full employment.

Low interest rates.

Reduced cost of living.

Inexpensive imports.

The government prevention of monetary deflation eliminates the advantage of reduced cost of living during recessions. When there is a recession, prices tend to decrease, making goods and services more affordable for consumers. However, if the government takes measures to prevent monetary deflation, such as injecting money into the economy or implementing stimulus packages, it can stabilize prices and prevent them from falling. As a result, the cost of living remains higher, and the advantage of reduced expenses during a recession is eliminated.

Explanation

The government prevention of monetary deflation eliminates the advantage of reduced cost of living during recessions. When there is a recession, prices tend to decrease, making goods and services more affordable for consumers. However, if the government takes measures to prevent monetary deflation, such as injecting money into the economy or implementing stimulus packages, it can stabilize prices and prevent them from falling. As a result, the cost of living remains higher, and the advantage of reduced expenses during a recession is eliminated.

5. What is the day of the 1929 stock market crash sometimes called?

Manic Monday

Terrible Tuesday

Black Friday

Black Thursday

The day of the 1929 stock market crash is sometimes called Black Thursday. This is because on October 24, 1929, the stock market experienced a major crash, leading to the start of the Great Depression. The term "Black Thursday" is used to describe this significant event in financial history, symbolizing the beginning of a period of economic hardship and decline.

Explanation

The day of the 1929 stock market crash is sometimes called Black Thursday. This is because on October 24, 1929, the stock market experienced a major crash, leading to the start of the Great Depression. The term "Black Thursday" is used to describe this significant event in financial history, symbolizing the beginning of a period of economic hardship and decline.

6. What does Johnson say was the orthodox explanation for the worldwide economic contraction of the 1930s?

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

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

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

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

Johnson suggests that the orthodox explanation for the worldwide economic contraction of the 1930s is the Keynesian theory. According to this theory, the government did not take enough action to save the market system from the negative outcomes caused by its own mistakes or errors.

Explanation

Johnson suggests that the orthodox explanation for the worldwide economic contraction of the 1930s is the Keynesian theory. According to this theory, the government did not take enough action to save the market system from the negative outcomes caused by its own mistakes or errors.

7. How long did the Great Depression that began in 1929 last?

5 years.

8 years.

11 years.

15 years.

The Great Depression, which began in 1929, lasted for 11 years. This economic crisis started with the stock market crash in October 1929 and continued until 1940. During this period, there was a severe decline in economic activity, high unemployment rates, and a significant decrease in industrial production. The effects of the Great Depression were felt worldwide and had long-lasting impacts on the global economy, making it one of the most devastating economic downturns in history.

Explanation

The Great Depression, which began in 1929, lasted for 11 years. This economic crisis started with the stock market crash in October 1929 and continued until 1940. During this period, there was a severe decline in economic activity, high unemployment rates, and a significant decrease in industrial production. The effects of the Great Depression were felt worldwide and had long-lasting impacts on the global economy, making it one of the most devastating economic downturns in history.

8. In 1982, what did Rothbard believe would be the outcome of Reaganomics?

He believed it would create long-term prosperity for the USA.

He saw short-term success but long-term failure.

He didn't have an opinion.

He thought it was doomed to be a fiasco.

Rothbard believed that Reaganomics would be a fiasco. This suggests that he had a negative outlook on the economic policies implemented by Reagan. He did not believe that these policies would lead to long-term prosperity for the USA. Instead, he expected them to result in failure.

Explanation

Rothbard believed that Reaganomics would be a fiasco. This suggests that he had a negative outlook on the economic policies implemented by Reagan. He did not believe that these policies would lead to long-term prosperity for the USA. Instead, he expected them to result in failure.

9. Which of the following ideas do all the major non-Austrian economic schools share?

Business crises stem from market processes.

Economic contractions are caused by excess liquidity.

Inflation is the result of expropriated labor.

The rate of growth of the money supply dictates the growth of the economy.

All the major non-Austrian economic schools share the idea that business crises stem from market processes. This means that they believe economic downturns and recessions are a natural part of the market economy and are caused by factors within the market system itself, such as fluctuations in supply and demand, changes in consumer behavior, or shifts in market conditions. This perspective suggests that business cycles are inherent to the functioning of the market and can be influenced by various economic factors.

Explanation

All the major non-Austrian economic schools share the idea that business crises stem from market processes. This means that they believe economic downturns and recessions are a natural part of the market economy and are caused by factors within the market system itself, such as fluctuations in supply and demand, changes in consumer behavior, or shifts in market conditions. This perspective suggests that business cycles are inherent to the functioning of the market and can be influenced by various economic factors.

10. What was the stark realization that conventional economists were forced to face during the economic crisis of the 1970s?

The fact that lowering interest rates creates inflation.

The fact that inflation doesn't offset unemployment.

The fact that business cycles exist.

The fact that lower taxes generate more government revenue.

During the economic crisis of the 1970s, conventional economists were forced to face the stark realization that business cycles exist. This means that economies go through periods of expansion and contraction, with alternating periods of growth and recession. This realization challenged the previously held belief that economies could continuously grow without experiencing any downturns. It highlighted the inherent volatility and unpredictability of economic systems, leading economists to reassess their theories and policies to better understand and manage these fluctuations.

Explanation

During the economic crisis of the 1970s, conventional economists were forced to face the stark realization that business cycles exist. This means that economies go through periods of expansion and contraction, with alternating periods of growth and recession. This realization challenged the previously held belief that economies could continuously grow without experiencing any downturns. It highlighted the inherent volatility and unpredictability of economic systems, leading economists to reassess their theories and policies to better understand and manage these fluctuations.