ECN 1500 Problem set 2 Study Questions and Correct Answers 100% Verified 2024/2025

ECN 1500 Problem set 2 Study Questions and Correct Answers 100% Verified 2024/2025 What historical event led to Keynesian Economics? - Correct Answer The Great Depression What was there about this event that was inconsistent with generally accepted economic theory at that time? - Correct Answer The recession lasted a long time despite classical economics "laissez faire" where the market would eventually fix itself with no government spending. Which of the two economists represents Classical Economics? How do you know? - Correct Answer Hayek, because he refers to the economy as "us" and "we" and not an object like keys. He talks about laissez faire and no government the people pursue their own interest instead of being decided by a selected few. To quote F.A Hayek the video "I don't want a plan made by the few, I want one made from the many" Who makes the comment, "the long run is here, it's time to get sober?" Is a focus on the long run a Classical or Keynesian attribute? - Correct Answer F.A Hayek states that referencing the classical economic attribute "the long run" while talking to a hangover Keynes because when people get drunk they only think of the short run of being happy, rather than the long run being the hangover the next day. What is meant by "bottom up" approach and "top down" approach? Who supports each and why? - Correct Answer Bottom up refers to an unplanned economy based on people pursuing their own self interest with no certain plan. Bottom up is classical, top down is keynesian. Top down more specifically is a planned economy, the allocation of resources is determined through a comprehensive production plan that determines Output. Who argues that WWII ended the Great Depression and uses that correlation to support his theory that government intervention is needed in the macroeconomy? How does this correlation support his theory? (Hint: use the concept of Aggregate Demand in your answer). - Correct Answer Keynesian, because the government spent a lot of money on war production into the economy to produce jobs, and pushed the economy out of the recession. Keynes believed that if people would be left to their own devices and saved their money, then the economy would never have grown out of the recession during WWII and the Great Depression.