If the economy is suffering through a rampant inflationary period, would a Keynesian economist advocate for stabilization policy that involves higher taxes and higher interest rates? Explain your answer.

If the U.S. government's budget deficits are increasing aggregate demand, and the economy is producing at a level that is substantially less than potential GDP, then: a) government borrowing is likely to crowd out private investment. b) an inflationary increase in the price level is in real danger. c) the central bank might react with an expansionary monetary policy. d) higher interest rates will crowd out private investment.

Consider an economy currently in recession. Which is NOT a policy move that could assist the economy, as discussed in class? Raising the money supply Raising government spending Lowering bank reserves Lowering interest rates

When an economy dips into a recession, consumers will often be relatively pessimistic about the future for an extended period time. How will this pesimism affect the speed and strength of the recovery?

Should Monetary and Fiscal Policymakers Try to Stabilize the Economy? Explain.

Use the IS/MP framework to explain the impact of stabilization policy to correct for a negative output in the short-run.

Suppose three economies are hit with the same negative supply shock.   In country A, inflation initially rises and output falls; then inflation rises more and output increases.   In country B, inflation initially rises and output falls; then both inflation and output fall.   In country C, inflation initially rises and output falls; then inflation falls and output eventually increases. What type of stabilization approach did each country take?   The answer choices for each country are: Stabilize inflation, stabilize output, or do nothing

A 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…

Do you think policy makers should attempt to stabilize the economy ? Why ?

Please explain with well-structured paragraphs on the basic principles of the New Keynesian Economics.