Simons- Natural monopolies correct answers He argued that the existence of natural monopolies, where a single firm can efficiently serve an entire market due to economies of scale or network effects, could potentially justify limited government regulation.
best approach was to subject natural mono...
Econ 402 final guide || A Verified A+ Pass.
Simons- Natural monopolies correct answers He argued that the existence of natural monopolies,
where a single firm can efficiently serve an entire market due to economies of scale or network
effects, could potentially justify limited government regulation.
best approach was to subject natural monopolies to strict government oversight rather than full-
scale government ownership. He emphasized the importance of regulating prices and ensuring
fair competition
Simons- Anti-Trust policy correct answers Simons was a strong advocate for aggressive anti-
trust policies. He believed that concentrated economic power and monopolistic behavior were
detrimental to a competitive market economy. Simons argued that effective anti-trust laws
should be in place to prevent the formation and abuse of monopolies.
Simons- National industry recovery act correct answers critical of the National Industrial
Recovery Act (NIRA), which was a key policy of President Franklin D. Roosevelt's New Deal
during the Great Depression. He viewed the NIRA as an overly interventionist approach that
gave excessive power to industry leaders and hindered market competition. Simons argued that
the NIRA's codes and regulations stifled innovation, reduced efficiency, and impeded economic
recovery.
Simons- Taxation correct answers Simons proposed a comprehensive tax reform plan known as
the "Simons Plan" or the "Chicago Plan." He advocated for a progressive consumption tax,
which aimed to tax individuals based on their consumption rather than their income. Simons
argued that this approach would encourage savings and investment, promote economic growth,
and enhance income redistribution.
Simons- Protective tariffs correct answers Simons opposed the use of protective tariffs. He
argued that tariffs, which are taxes imposed on imported goods, hindered international trade and
harmed overall economic welfare. Simons believed in the benefits of free trade and the principle
of comparative advantage. He advocated for reducing barriers to trade and promoting
international economic cooperation.
Why did Keynes think that the loanable funds market approach of the classical economists left
the interest rate indeterminate? correct answers Keynes criticized the classical economists'
approach to the loanable funds market because he believed it left the interest rate indeterminate.
According to the classical view, the interest rate would adjust to equate the demand and supply
of savings and investments. However, Keynes argued that this approach failed to consider the
role of aggregate demand and the possibility of involuntary unemployment. He believed that the
interest rate was not solely determined by the loanable funds market but was also influenced by
other factors
Briefly describe the approach that Keynes used to determine the interest rate. correct answers
Keynes used a liquidity preference framework to determine the interest rate. He argued that
individuals and firms hold money for three reasons: transactions, precautionary motives, and
speculative motives. The speculative motive refers to the desire to hold money instead of
, investing it due to uncertainty or expectations of future changes in asset prices. Keynes proposed
that the interest rate would be determined by the interaction between the demand for money
(liquidity preference) and the supply of money. If the interest rate was initially set too high,
individuals would have a greater preference for holding money, leading to a lower level of
investment
Why did Hicks think that Keynes' approach was vulnerable to a criticism similar to Keynes'
criticism of the classical economists? correct answers Hicks, while supportive of Keynes'
framework, believed that it was vulnerable to a criticism similar to Keynes' criticism of the
classical economists. Hicks argued that Keynes' approach relied on assuming a stable
relationship between income and investment, neglecting the interdependence between the two.
Hicks contended that just as Keynes criticized the classical economists for assuming a fixed
interest rate, one could criticize Keynes for assuming a fixed marginal efficiency of capital (the
rate of return on investment)
What model did Hicks develop to determine the equilibrium interest rate? correct answers Hicks
developed the IS-LM model (Investment-Savings/Liquidity Preference-Money Supply). The IS-
LM model combines the real side of the economy, represented by the investment-savings
relationship (IS curve), with the monetary side, represented by the liquidity preference-money
supply relationship (LM curve). The model provides a simultaneous equilibrium solution for
both the goods market (investment and savings) and the money market (liquidity preference and
money supply). By incorporating both income and the interest rate as endogenous variables,
Hicks aimed to capture the interdependence between investment, savings, and money demand in
determining the equilibrium interest rate.
How did Hicks' approach avoid the problems in both of the previous approaches? correct
answers Hicks' approach in the IS-LM model helped avoid the problems faced by both the
classical loanable funds market approach and Keynes' liquidity preference framework. It
recognized the importance of both the interest rate and aggregate income in determining
investment, savings, and money demand. By explicitly considering the interplay between the real
and monetary sectors of the economy, the IS-LM model provided a more comprehensive
framework for analyzing the equilibrium interest rate and its impact on output and employment
Discuss two reasons that Keynes thought declines in the money wage rate would not eliminate
involuntary unemployment. correct answers Sticky Wages: Keynes argued that wages, especially
in the short run, were not flexible downward or "sticky." He posited that workers and labor
unions were resistant to nominal wage cuts due to various factors, such as social norms,
contracts, and the belief that lower wages would reduce their standard of living. In the face of a
decrease in aggregate demand and economic downturns, employers would not be able to easily
lower wages to adjust to the reduced level of spending. This stickiness of wages meant that even
if wages were to decrease, they would not adjust quickly enough to match the decline in
aggregate demand, leading to persistent unemployment.
Demand Deficiency: Keynes emphasized the importance of aggregate demand in determining
employment levels. He argued that declines in wages alone would not be sufficient to stimulate
aggregate demand and create full employment. According to Keynes, the primary driver of
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