"According to Keynes, the economy is essentially a self-regulating system." Do you agree or disagree? Why?
What will be an ideal response?
Disagree. The inflexibility of prices meant that changes in aggregate demand would affect output and employment rather than the price level. Involuntary unemployment was likely when aggregate demand decreased because the wage level would not adjust to bring about a new, full-employment equilibrium. Hence, the economy is not a self-regulating system according to Keynes.
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The Fed conducts an open market purchase of securities of $5,000. If the currency drain ratio is 0 percent and the desired reserve ratio is 10 percent, then the total increase in the quantity of money is
A) $4,000. B) $5,000. C) $20,000. D) $50,000. E) $10,000.
To calculate the internal rate of return on a factory that would yield a perpetual future stream of income, one would divide
A) the annual future payment by the cost of the factory. B) the sum of the future payments by the cost of the factory. C) the cost of the factory by the rate of interest. D) the cost of the factory by the annual future payment.