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Fiscal policy, The Keynesian View and the Historical Development of Macroeconomics

09.01.2023
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Fiscal policy, The Keynesian View and the Historical Development of Macroeconomics.

Fiscal policy refers to the actions taken by the government to influence the economy through spending and taxation. This can include increasing government spending to stimulate economic activity, or decreasing spending and increasing taxes to control inflation.

The Keynesian view, named after economist John Maynard Keynes, emphasizes the importance of government intervention in the economy through fiscal policy to stabilize economic activity and reduce unemployment. According to this view, during economic downturns, government should increase spending and decrease taxes to stimulate demand and boost economic growth.

The historical development of macroeconomics has been shaped by different schools of thought, such as the classical economists, who believed that the economy would naturally adjust to equilibrium, and the Keynesians, who emphasized the role of government intervention. Over time, macroeconomics has evolved to incorporate insights from other fields such as microeconomics, finance, and behavioral economics, leading to the development of new macroeconomic theories such as the New Classical macroeconomics and New Keynesian macroeconomics.

The Keynesian view of macroeconomics has had a significant impact on economic policy, and continues to be an important framework for understanding the role of government in the economy. However, it should be noted that it has also been criticized and alternative theories have been developed over time in response to its limitations.

1.If the government increased government expenditures or cut taxes in order to combat a recession, this would be an example of:
2.Fiscal programs that stimulate or restrain aggregate demand without any new legislative action are called:
3.If an increase in an individual’s income by $500 increases his consumption expenditure by $250, his marginal propensity to consume must be:
4.When the price level in an economy is constant, the numerical value of the expenditure multiplier is equal to:
5.If the value of the expenditure multiplier in a particular country is 4, the marginal propensity to consume is equal to:
6.According to Keynes, powerful trade unions and large corporations:
7.A restrictive fiscal policy:
8.Keynesians believe that an increase in total spending would:
9.According to Keynesian analysis, when an economy is operating below its potential capacity, the government should:
10.Keynes believed that:
11.If an economy is operating below its potential capacity in the short run, an expansionary fiscal policy will shift the:
12.Before the Great Depression of the 1930s, most economists believed that:
13.If an economy is operating below its potential capacity in the short run and the money supply is held constant, which of the following is most likely to direct the economy to full employment?
14.Total fiscal expenditure in a country during a particular year was $4.5 million. If the government borrowed $1.5 million to meet this expenditure, then its total tax revenue was:
15.The multiplier principle is important because it:
16.When many households simultaneously try to increase their saving, actual saving may fail to increase because the reduction in consumption and aggregate demand will reduce income and employment. This is referred to as:
17.If the value of the expenditure multiplier is 3, then a $3 million reduction in fiscal spending during a certain year will:
18.Suppose an economy is experiencing an inflationary economic boom as a result of excessive aggregate demand, and money supply is assumed to be constant. In this case, Keynesians prescribe a(n):
19.The marginal propensity to consume is equal to:
20.According to the Keynesian view, equilibrium takes place when:
21.In order to finance an excess of expenditures relative to revenues, the U.S. government will generally:
22.A budget surplus:
23.According to the Keynesian view, an unanticipated reduction in spending will:
24.Which of the following economic changes did the U.S. economy experience during the early 1930s?
25.Discretionary fiscal policy refers to changes in:
26.If total government expenditure in a country during a particular year amounts to $6.9 million and its total tax collection in the same year is $5.9 million, then:
27.Which of the following is a major deficiency of fiscal policy as a stabilization tool?
28.Keynes argued that when excess capacity is widespread and people are extremely pessimistic about the future, it is likely that:
29.The multiplier principle describes how:
30.According to Keynesian analysis, a decline in total spending below the full-employment level of output will lead to:
31.The ratio of the change in equilibrium output to the independent change in investment, consumption, or government spending that brings about the change is referred to as the:
32.According to Keynesian analysis, a shift to a more expansionary fiscal policy will be most likely to:
33.When the unemployment rate is low, the impact of additional spending on real output will:
34.According to Keynes, which of the following was true of the U.S. economy during the 1930s?
35.Suppose the price level in a country is constant and the marginal propensity to consume equals 0.50. Equilibrium output goes up by $20 million when investment expenditure in this country increases by:
36.A major advantage of automatic stabilizers is that:
37.When there are few unemployed resources, additional spending will tend to:
38.The countercyclical policy emphasized by Keynesians is a policy that:
39.If equilibrium output declines by $15 million when investment expenditure in a country decreases by $5 million, the marginal propensity to consume is:
40.Which of the following is most likely to occur when the government increases its expenditures on highways and flood-control projects?
41.The distinction between discretionary fiscal policy and automatic stabilizers is that:
42.If the marginal propensity to consume in an economy is 0.40, an increase in total disposable income by $25 million will increase consumption expenditure by:
43.If an increase in fiscal spending by $40 million during a particular year expands output by $120 million, the value of the expenditure multiplier is:
44.The government is engaging in fiscal policy when it:
45.Which of the following policy changes would be most likely to lead to an increase in private investment?
46.The value of the expenditure multiplier increases when:

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