ECONOMICS KEYNES VS. HAYEK QUIZ. Name: Hour:

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1 ECONOMICS KEYNES VS. HAYEK QUIZ Name: Hour: 1. The field of microeconomics studies A. The behavior of large regional, national and international corporations or governments and dealing with their performance, structure, behavior, and decision making B. The behavior of individual households and firms in making decisions on the allocation of limited resources C. The behavior of individuals through the study of their participation in experimentally designed games D. The behavior of politicians in relation to their voting behavior regarding economics issues 2. The field of macroeconomics studies A. The behavior of large regional, national and international corporations or governments and dealing with their performance, structure, behavior, and decision making B. The behavior of individual households and firms in making decisions on the allocation of limited resources C. The behavior of individuals through the study of their participation in experimentally designed games D. The behavior of politicians in relation to their voting behavior regarding economics issues 3. Which diagram represents the Boom and Bust cycle of concern to John Keynes and F.A. Hayek? A. B. C. D.

2 4. What is the paradox of thrift according to Keynes? A. Saving when times are good is a wise policy, because then you have money to live on when times are bad B. Saving when times are bad is a wise policy, because then you can stimulate demand later when times are good C. Saving when times are bad is poor policy, because then no money is circulated in to the economy to stimulate demand D. Saving when times are good is a bad policy because the extra money circulating in the economy will help stabilize supply, and bring down excess demand 5. In order to stimulate the economy in a bust Keynes recommended A. Tax cuts B. A reduction in the sale of government bonds C. Increased government spending D. Decreased government spending 6. What is aggregate demand? A. The total supply of products available to all Americans in the United States B. The total demand for all products and services in the United States C. The total demand for a single product or service by individuals in specific regions of the United States D. The total supply of specific products or services in the United States 7. Critics of Keynes stated that his policy in the long run would lead to large governmental deficits. How did Keynes answer this complaint? A. The aggregate demand in the long run would stabilize through the adjustment of monetary and fiscal policies B. The decrease in the interest rate provided by the central bank would encourage investment, and thus lead to an increase in aggregate demand C. In the long run, we are all dead

3 D. Government spending can be used to increase aggregate demand, thus increasing economic activity, reduce unemployment, and deflation 8. Keynes believed in what type of economy? A. Bottom Up, Mechanical, Cooperative B. Bottom Down, Organic, Individualistic C. Top Down, Mechanic, Cooperative D. Bottom Up, Organic, Individualistic 9. F.A. Hayek believed in what type of economy? A. Bottom Up, Mechanical, Cooperative B. Bottom Down, Organic, Individualistic C. Top Down, Mechanic, Cooperative D. Bottom Up, Organic, Individualistic 10. F.A. Hayek was from what school of economic thought? A. The Chicago School B. The German School C. The London School D. The Paris School 11. According to Hayek, cronyism, or crony capitalism was? A. The ability of individuals to influence the government through voting behavior B. The funneling of government monies to friends and supporters of politicians controlling its use C. The funneling of government monies to deserving public projects such as shovel ready jobs D. The funneling of government monies to politicians in the form of salary increases

4 12. Economists should be most worried at what times according to Hayek? A. During the Bust because aggregate demand is down B. During the Boom because aggregate demand is down C. During the Boom because it is an illusion created by the government borrowing or printing money and putting it into the economy causing people to believe there is plenty of money to go around D. During the Bust because it is an illusion created by the overreaction of producers in creating excess supply and then laying off workers who then have no income to demand products and therefore increase aggregate demand 13. Why is full employment not that important to Hayek? A. Because the government could employ everyone, but they would have no individual freedom to pursue their own dreams B. Because the government could employ everyone, but then there would not be enough tax revenue coming in to pay them all C. Because the government could employ everyone, but then there would not be enough of certain items leading to rationing D. Because the government could employ everyone, leading to an increase in aggregate demand overall, and a circular flow of money into the economy 14. How would Keynes answer the question, Should the government attempt to do what is in the best interests of all, or should individuals guide their own interests even though many may be hurt? A. The government should intervene in the economy and attempt to guide it in order to prevent individuals from suffering during the Bust portion of the business cycle B. The government should be changed every few years so that average people have a chance to manage the economy and assist those who have no desire to work C. The government should allow individuals their maximum freedom to pursue their dreams and goals and find the most efficient means in which to help each other, even though some people may suffer D. The government should be composed of an elite few that are specifically trained to manage the economy in order to allow individual freedom to the extent possible.

5 15. How would Hayek answer the question, Should the government attempt to do what is in the best interests of all, or should individuals guide their own interests even though many may be hurt? A. The government should intervene in the economy and attempt to guide it in order to prevent individuals from suffering during the Bust portion of the business cycle B. The government should be changed every few years so that average people have a chance to manage the economy and assist those who have no desire to work C. The government should allow individuals their maximum freedom to pursue their dreams and goals and find the most efficient means in which to help each other, even though some people may suffer D. The government should be composed of an elite few that are specifically trained to manage the economy in order to allow individual freedom to the extent possible. EXTRA CREDIT: WHO IS RIGHT ON THIS ISSUE? A. F.A. HAYEK B. JOHN MAYNARD KEYNES C. JOHN MAYNARD HAYEK D. F.A. NASH