Game of Theories: The Great Recession Practice Questions | Marginal Revolution University

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Game of Theories: The Great Recession Practice Questions

1. According to the Keynesians, which of the following is a reason aggregate demand fell in 2008? *

a. The bursting of the housing bubble meant consumers had to pay more in mortgages, and so had less money to spend. This caused consumer spending to drop.

b. The housing bubble encouraged banks to make bad loans. Entrepreneurs responded by saving these loans instead of investing them, causing investment to drop.

c. Unemployment and lower income, resulting from a drop in consumer spending and investment, meant governments took in less in tax revenue. This caused government spending to drop.

d. b and c only.

2. According to the real business cycle theorists, why was recovery so slow? *

a. Subsidies encouraged bad investments.

b. Policy uncertainty.

c. Higher taxes.

d. b and c only.

3. According to market monetarists, what caused aggregate demand to fall in 2008? *

a. Fed policy was too expansionary.

b. Fed policy was not expansionary enough.

c. Fed policy deviated from maintaining a stable inflation rate.

d. The Fed’s expansionary policy took too long to affect the economy.

4. According to the Austrians, which of the following was not a cause of the Great Recession? *

a. Fed policy created artificially low interest rates.

b. Government housing policy encouraged bad mortgages.

c. The tax system incentivized borrowing to buy homes.

d. Housing price controls distorted price signals.

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Principles of Economics Macroeconomics

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Principles of Economics: Macroeconomics

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