Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Chapter 8, Problem 8RQ
To determine
To Explain: The differences among Classical and Keynesian economists on the timeline involved in reaching long-run equilibrium and the usefulness of policies of antirecessions in this regard
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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?
What would a Keynesian likely recommend in response to a recession? What would a neoclassical likely recommend? Why would a Keynesian policy response not make much sense in response to a minor recession like the one that occurred in 1990? What would be the cost of letting the economy adjust by itself to a new long run equilibrium?
Explain why economic fluctuations happen according to Keynesians. Why do expansions happen, and recessions?
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- John Maynard Keynes spearheaded a new school of macroeconomic theory during the Great Depression. Which of the following represents a Keynesian point of view of macroeconomics?arrow_forwardDraw and properly label an AD-AS model to show Keynesian, intermediate, and neoclassical zones. Then, briefly explain the levels of unemployment, inflation, and real GDP in each zone, and confirm whether or not goals of a macro economy are being achieved in each zone.arrow_forwardDoes the graph above reflect a Classical Model or a Keynesian Model? How do you know? What is happening in this economy in the short run?arrow_forward
- Do you believe that the Hayek's classical AD-AS model explains the factors that cause changes (shifts) in AS realistically? Why or Why not?arrow_forwardAccording to Keynesian business cycle theory, what should the government do in response to a recession?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_forward
- If the economy is operating in the neoclassical zone of the SRAS curve and aggregate demand falls, what is likely to happen to real GDP?arrow_forwardCan someone please answer both questions asap?In a basic Keynesian macroeconomic model, if Effective demand is greater than the output then A. ED > Y(I > S) - V (decrease) Y (increase) B. ED > Y(I > S) - V (increase) Y (decrease) C. ED < Y(I < S) - V (decrease) Y (increase) D. ED < Y(I < S) - V (increase) Y (decrease) Question 2 What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income? A. The supply of and demand for loanable funds would shift right. B. The supply of and demand for loanable funds would shift left. C. The supply of loanable funds would shift right and the demand for loanable funds would shift left. D. None of the above is correct.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
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