Exploring Macroeconomics
8th Edition
ISBN: 9781544337722
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Chapter 14, Problem 15P
To determine
To evaluate:
The way Keynesian assumption of wage and price rigidityrelates to the steepest portion of
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Students have asked these similar questions
The graph above refers to a significant increase in individual income taxes, taking them to their highest level in 50 years. Which of the following is likely to result?
a) macroeconomic supply will decrease in the short run
b) the economy will experience lower economic growth
c) inflationary pressures will be mild
d) cyclical unemployment will decrease
Which of the following describes the use of Keynesian macroeconomic policy to resolve an inflationary gap problem in the economy?
a) Unemployment, resulting from the short-run product markets equilibrium being below Long-run Aggregate Supply (LRAS), causes wages to decline, which increases short-run Aggregate Supply (AS), until long-run equilibrium is attained at full employment level of income and a lower price level.
b) Government spending is increased, increasing Aggregate Demand (AD) to a level sufficient to attain long-run equilibrium at full employment level of income and a higher price level.
c) In attempting to produce beyond the economy's natural level of GDP, producers bid up wages and prices of other resources, causing the short-run Aggregate Supply (AS) to decrease to the point where long-run equilibrium is restored.
d) Taxes are increased reducing Aggregate Demand (AD) to a level consistent with full employment.
Which characteristics are associated with the Keynesian theory?
Choose all that apply.
Group of answer choices
Flexible prices
Long-run view
Long-run aggregate supply primarily affects economic growth (real GDP)
Short run view
Aggregate demand primarily affects economic growth (real GDP)
Inflexible prices
Chapter 14 Solutions
Exploring Macroeconomics
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Similar questions
- In a carefully labelled diagram, draw an economic equilibrium in the Keynesian range of the aggregate supply curve.arrow_forwardThe Chinese economy is at full employment when the global economy goes into recession. Explain the effects of the global recession on China's macroeconomic equilibrium in the short run (assume there are no fiscal or monetary policy interventions).arrow_forwardThe Keynesian economic framework is based on an assumption that: A) an increase in government spending will cause the aggregate demand curve to shift to the left. B) people can afford a high level of government services. C) prices and wages are sticky and do not adjust rapidly. D) an increase in government spending will cause the aggregate demand curve to shift to the left.arrow_forward
- In the (post) Keynesian theory prices are “management-based” (firms set prices)and “cost-determined”. Discuss.arrow_forwardWhich of the following would cause the Aggregate Supply curve to move from AS to AS2 in the graph below? A) A general increase in energy and labor cost for businesses. B) A general decrease in labor cost for businesses. C) An increase in productivity. D) A federal government increase in spending.arrow_forwardWhich is a valid interpretation of Keynes' law? Focusing exclusively on supply side economics will make the economy grow the fastest. Each time goods are produced, it represents income for someone. Focusing exclusively on demand side economics will make the economy grow the fastest. A given value of supply creates an equal value of demand somewhere in the economy. Demand creates its own supply. In the long run, supply and demand grow at the same rate.arrow_forward
- In the Keynesian framework, which of the following events might cause a reaction ? a) A large increase in the price of the homes people own b) Rapid growth in the economy of a major trading partner c) The development of a major new technology offers profitable opportunities for business d) The interest rate rises e) The good imported from a major trading partner becomes much less expensivearrow_forwardThe aggregate supply curve is probably better thought of as a price/output response curve. Select one: True Falsearrow_forwardWhich of the following statements is most accurate? The Keynesian model focuses on aggregate demand while the classical model focuses on aggregate supply. The Keynesian model focuses on aggregate supply while the classical model focuses on aggregate demand. The Keynesian model focuses on long run while the classical model focuses on short run. The Keynesian model calls for no government intervention while the classical model insist the government should act to a macroeconomy.arrow_forward
- Classical economists think prices and quantities respond to supply and demand and the economy produces its potential output over time. However, Keynesian economists believe pricing and wage rigidities may lower the economy's long-term equilibrium output. What is the Price-wage rigidity?arrow_forwardAccording to the supply-side economics principles promoted by President Ronald Reagan, economic growth would occur when Group of answer choices business was regulated by antitrust policy. investment in capital goods was decreased. corporate business taxes were reduced. unemployment benefits were increased.arrow_forwardGiven the following circumstances, indicate whether or not the aggregate supply curve would shift and, if so, which way would it shift: The price of a barrel of oil doubles An advance in alternative energy technology significantly reduces its cost In order to maintain a relatively clean air quality, a carbon emissions tax is levied against firms with a carbon footprint As a result of fracking, the price of natural gas is significantly reduced Advances in technology increase the productivity of the American worker, on average, by 30%arrow_forward
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