One similarity between the Great Depression and the Great Recession is that in both cases: there was noticeable stress in financial markets. Classical economists believe that government intervention in the economy is unnecessary because: prices are flexible and, therefore, the economy will adjust back to full employment on its own. Keynesian economists believe that the economy is unstable and tends toward cyclical unemployment because: prices are sticky and prevent the economy from adjusting to full employment. Consider these four graphs. Which of the following led to the Great Recession? This would tend to cause. there was a stock market crash at the beginning of the depression. Keynesian economists assume that there are frictions in markets. Classical economists tend to Choose one answer. "The economy tends toward instability and cyclical unemployment.". Classical economics or classical political economy is a school of thought in economics that flourished, primarily in Britain, in the late 18th and early-to-mid 19th century. This would have been caused by, When contrasted with other recessions, the Great Depression, If prompted to describe fundamental beliefs about the economy, a Keynesian economist would state that, According to classical economists, changes in aggregate demand have little effect on the overall economy, and therefore, long-run aggregate supply is the primary source of economic growth, If real GDP was $977 billion in 1929, by how much did real GDP decrease at the peak of the Great Depression, During the Great Depression, the U.S. aggregate demand curve shifted to the left, in part, because, During the Great Recession, there was a financial crisis, a stock market crash, and a collapse in housing prices, all of which, contributed to a very long and deep recession, During the Great Recession, the U.S. ________ curve shifted to the ________. Higher tax rates and a banking crisis then drove the economy into a depression. So that's the Classical Model. The government should intervene in the economy to promote full employment. In comparison with other recessions, the Great Depression: When contrasted with other recessions, the Great Depression: Which of the following facts is/are FALSE regarding the Great Depression and the Great Recession? During the Great Recession, there was a financial crisis, a stock market crash, and a collapse in housing prices, all of which: contributed to a very long and deep recession. If you asked a classical economist which economic time frame she prioritized, how might she respond? Keynesian Demand Management (Post World War II), - Phillips Curve trade-off (inflation vs unemployment). Learn vocabulary, terms, and more with flashcards, games, and other study tools. The Great Recession lasted longer and was deeper than the average recession, in part, because: there was a major financial crisis following the collapse of housing prices. On the other hand, an increase in aggregate demand causes the price level to _____________ in the long run. Keynesian economists believe that government intervention in the economy is necessary because: prices are sticky and prevent the economy from moving toward full employment. Classical economists thought that: A. flexible wages and prices were the principal causes of recessions. a. there would always be an excess of saving over investment. Although the term has been used (and abused) to describe many things over the years, six principal tenets seem central to Keynesianism. Classical economists believe that the economy is self-correcting, which means that when a recession occurs, it needs no help from anyone. Classical economics places little emphasis on the use of fiscal policy to manage aggregate demand. Consider these four graphs. The labour theory of value, for example, was adopted by Karl Marx , who worked out all of its logical implications and combined it with the theory of surplus value , which was founded on the assumption that human labour alone creates all value and thus constitutes the sole source of profits. The collapse of housing prices led to decreased wealth and significant problems in financial markets, as well as a decrease in expected income and a stock market collapse. Which of the following best summarizes the main causes of the Great Depression? When describing how the economy works, classical economists claim that: What is the difference between unemployment rates during the Great Depression and the Great Recession at their peaks? Which of the following are supported by Keynesian economics? Domestic product ( GDP ) _________ that the natural rate of unemployment is 5 % the U.S. aggregate than. 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