1. A basic feature of the Keynesian view was that

overproduction and unemployment would cause prices and wage rates to increase.

flexible wages and prices would eliminate unemployment and overproduction.

people don’t always want to buy what has been produced.

an increase in saving would cause an increase in the interest rate and a decrease in investment spending.

2. Government purchases rise by $50 billion. According to Keynesian economists:

Crowding out will reduce private sector spending by most of the $50 billion.

Private sector spending will be unchanged.

Crowding out will reduce private sector spending by all of the $50 billion.

Private sector spending will rise as jobs and income are created.

3. The Keynesian theory predicts that an increase in the supply of savings will

lower interest rates and reduce investment demand.

lower interest rates and expand investment demand.

raise interest rates and reduce investment demand.

raise interest rates and expand investment demand.

4. Full employment GDP is $2 trillion and the economy is currently producing $1.8 trillion.

The Keynesians would say to use expansionary fiscal policy.

The Keynesians would say to use contractionary fiscal and monetary policy.

The Keynesians would say to use contractionary monetary policy.

The Keynesians would say to use no policy; the economy will quickly correct itself

5. Which of the following is true?

According to Keynes, if savings were less than intended investment, interest rates would fall, bringing the economy back to full employment.

Keynes asked the question: If supply creates its own demand, why are we in a worldwide depression?

Keynes believed that wages and prices were flexible.

Keynes believed the economy was basically stable.