MACROECONOMICS FOR TODAY
10th Edition
ISBN: 9781337613057
Author: Tucker
Publisher: CENGAGE L
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Question
Chapter 8, Problem 4SQ
To determine
The theory that explained the automatic adjustment to full employment equilibrium.
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Keynesian theory suggests that in the short run _________
a
prices fluctuate significantly.
b
wages and prices are free flowing.
c
wages are based on supply and demand.
d
wages and prices are sticky.
According to Keynesian economists, if people in the economy are not spending enough then the __________ should step in to fill the gap.
a
federal reserve
b
markets
c
federal government
d
banks
In the Keynesian framework, for each of the following events which might cause a recession and/or inflation? Explain using Aggregate Demand/ Aggregate Supply.
a. A large increase in the price of the homes that 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 expensive. 
Chapter 8 Solutions
MACROECONOMICS FOR TODAY
Ch. 8.4 - Prob. 1YTECh. 8 - Prob. 1SQPCh. 8 - Prob. 2SQPCh. 8 - Prob. 3SQPCh. 8 - Prob. 4SQPCh. 8 - Prob. 5SQPCh. 8 - Prob. 6SQPCh. 8 - Prob. 7SQPCh. 8 - Prob. 8SQPCh. 8 - Prob. 9SQP
Ch. 8 - Prob. 1SQCh. 8 - Prob. 2SQCh. 8 - Prob. 3SQCh. 8 - Prob. 4SQCh. 8 - Prob. 5SQCh. 8 - Prob. 6SQCh. 8 - Prob. 7SQCh. 8 - Prob. 8SQCh. 8 - Prob. 9SQCh. 8 - Prob. 10SQCh. 8 - Prob. 11SQCh. 8 - Prob. 12SQCh. 8 - Prob. 13SQCh. 8 - Prob. 14SQCh. 8 - Prob. 15SQCh. 8 - Prob. 16SQCh. 8 - Prob. 17SQCh. 8 - Prob. 18SQCh. 8 - Prob. 19SQCh. 8 - Prob. 20SQ
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Similar questions
- In the Keynesian model if there is equilibrium beyond full employment which of the following is correct? Multiple Choice о O O O The inflationary gap should be increased. The recessionary gap should be closed. The recessionary gap should be increased. The inflationary gap should be closed.arrow_forwardIn the Keynesian framework, which of the following events might cause recession/inflation. Explain using the Aggregate Demand/Aggregate Supply with examples. (Examples are crucial please!) d. The interest rates rises e. The good imported from a major trading partner becomes much less expensivearrow_forwardAccording to classical economic theory, which of the following describes the potential long-run self-correction of the economy depicted in the graph above? a. Consumption will come out of its stagnation and shift AD to the right, bringing output back to full employment levels. b. Wage rates will increase, attracting labor back to full employment levels ans increasing output back to its natural rate. c. Long-run aggregate supply will shift left due to decreases in spending and restore long-run equilibrium. d. Nominal wages will decrease as the duration of unemployment extends, eventually shifting short-run aggregate supply to the right, bringing output back to its natural level. e. Economies do not self-correct.arrow_forward
- Use the Keynesian model to explain the procyclical behavior of Use the Keynesian model to explain the procyclical behavior of employment, money, inflation, and investment. Use the Keynesian model to explain the procyclical behavior ofarrow_forwardExplain why in our New-Keynesian model, equilibrium out- put (Y) and employment (N) are demand-determined. What is the key parameter driving this result? Explain.arrow_forwardIf the economy had been operating at a full- employment equilibrium, a. Describe the macroeconomic equilibrium after the rise in consumer spending. b. Explain and draw a graph to illustrate how the economy can adjust in the long run to restore a full-employment equilibrium. The magazine Women of China reported that Chinese women in big cities spent 63% of their income on consumer goods last year, up from a meager 26% in 2007. Clothing accounted for the biggest chunk of that spending, at nearly 30%, followed by digital products such as cell phones and cameras (11%) and travel (10%). Chinese consumption as a whole grew faster than the overall economy in the first half of the year and is expected to reach 42% of GDP by 2020, up from the current 36%.arrow_forward
- Use the Keynesian cross Diagram to depict the following:1- An increase in Government purchases [3]2- An Increase in taxes. [3]3- Automatic adjustment towards equilibrium when AE>PE. [4]arrow_forwardIn the Keynesian model, which of the following events lead to an increase in aggregate demand? (This is a multiple answer question. One of more options may be correct) a. An increase in the sales tax b. A new infrastructure project by the Federal government c. An increase in value of the Euro relative to the US-Dollar d. A drop in business confidence.arrow_forwardExplain why economic fluctuations happen according to Keynesians. Why do expansions happen, and recessions?arrow_forward
- According to Keynesian theory, the natural forces in the economy may not quickly move the economy toward potential real GDP. a. True b. Falsearrow_forwardAccording to the Keynesian model, which of the following would increase aggregate demand the most? a. Government drops the taxes for private businesses b. Government establishes a new agency financed by the government that helps the unemployed to find a job Increase in interest rates that results in the growth in investments into new equipment to O d. A decrease in government expenditures accompanied by the decrease in taxes e. Government expands its social projects and increases taxes to balance the budgetarrow_forwardThe simple Keynesian model a. understated the effect of an increase in government spending by neglecting the necessary decrease in the interest rate and consequent decrease in investment that accompany an increase in government spending. b. overstated the effect of an increase in government spending by neglecting the necessary decrease in the interest rate and consequent increase in investment that accompanies a decrease in government spending. c. overstated the effect of an increase in government spending by neglecting the necessary increase in the interest rate and consequent decline in investment that accompany an increase in government spending. d. understated the effect of an increase in government spending by neglecting the necessary increase in the interest rate and consequent decline in investment that accompany an increase in government spending.arrow_forward
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