ECON MACRO
5th Edition
ISBN: 9781337000529
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 11, Problem 2.9P
To determine
the assumption of classical economists with regards to the flexibility of wages, prices and interest rates, the implication of self- correcting tendenciesin an economy in case of recession and the disagreements of k’s with classical economists.
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Students have asked these similar questions
Keynes advocated the use of fiscal and monetary policy to stabilize an economy? When are the effects of these policies most beneficial? Select all that apply.
Select one or more:
In the short run
When the economy is operating at full employment
When the economy is operating significantly above full employment
When the economy is operating significantly below full employment
In the long run
Keynes recommended that high unemployment should be remedied with
a reduction in the money supply
an increase in government expenditures
an increase in taxes
an increase in aggregate supply
How do Keynesians and classicals differ in their beliefs about how long it takes the economy to reach long-run equilibrium? What implications do these differences in beliefs have for Keynesian and classical views about the usefulness of antirecessionary policies? About the types of shocks that cause most recessions?
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Similar questions
- What is the philosophical, economic essence of Keynesian doctrine or “Keynesianism” that emerged from the experience and attempted explanations of the Great Depression ? What would all Keynesians believe, in order to be “Keynesian?”arrow_forwardNow think about a major recession, like the one that occurred in 1982. (Hint: a major recession could be caused by a large shift to the left in the AD curve.) Why would a Keynesian policy make more sense in response to a major recession like the one that occurred in 1982? What would be the cost of following a neoclassical policy then?arrow_forwardHow would the level of aggregate demand be affected by a rise in the interest rate in the Keynesian theory? Which components would be affected most strongly?arrow_forward
- In the “real world” prices are not fixed, and hence the aggregate supply curve is not completely horizontal with a slope of zero. In order to illustrate why it is that aggregate supply curves slope up and to the right, Keynes made two crucial assumptions about the operation of the labor market. What were those two assumptions?arrow_forwardA friend of yours (who has not taken macroeconomics) has just read that Keynesian theory represented a direct attack on Classical theory. They don't understand either theory and knows you (having just taken macroeconomics) are well-versed in both. They ask you to explain the basic differences between how Keynes and the Classics understood the business cycle and their respective policy prescriptions. Your answer should probably include: a) a basic explanation of what full-employment GDP means and how it relates to the stability condition S=| (or, equivalently, leakages = injections); b) an explanation of why the Classicals believed that any movement away from full-employment GDP would be quickly fixed/reversed; c) an explanation of why Keynes thought the Classicals* "auto-correcting" story was problematic, i.e., a detailed explanation of Keynes' multiplier concept (how did Keynes believe a recession would unfold (step-by-step) and why did he believe it could persist); d) an explanation…arrow_forwardExplain why economic fluctuations happen according to Keynesians. Why do expansions happen, and recessions?arrow_forward
- What happens when firms and workers underestimate future prices in the economy? Focus your answer on what would happen to actual output as opposed to the expected potential output. (Course is macroeconomics).arrow_forwardWhat is the difference between the Keynesian zone, neoclassical zone, and intermediate zone in the AD/AS model? For each, predict the impact that an increase in aggregate demand would have on the price level relative to real GDP in each of those zones. How does the AD/AS model explain economic growth, recessions, as well as changes in unemployment and inflationary pressures?arrow_forwardWhat policy changes would Keynes recommend to counteract a recession?arrow_forward
- How do Classical economists and Keynesian economists differ in their perceptions of how well markets and prices function?arrow_forwarda) In the classical model, what is the impact of changes in the demand for goods and services on aggregate output? b) Did classical economists pay much attention to the supply-side effects of changes in income tax rates in the nineteenth and early twentieth centuries? Why or why not? What about supply-side economics?arrow_forwardA key difference between neoclassical and Keynesian economists is how to predict and treat the future growth of the economy. Neoclassicalists believe the focus should be on ____________ and Keynesians believe the focus should be on _________________. A, B, C, OR D ONE ANSWER A short-term problems; long-term problems B long-term problems; short-term problems C long-term problems; long-term problems D short-term problems; short-term problemsarrow_forward
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