4. The Keynesian and classical views of aggregate supply Complete the following table by matching the macroeconomic assumptions about aggregate supply to the appropriate school of thought. Keynesian Assumption The economy naturally tends toward potential real GDP. Classical

4. The Keynesian and classical views of aggregate supply Complete the following table by matching the macroeconomic assumptions about aggregate supply to the appropriate school of thought. Keynesian Assumption The economy naturally tends toward potential real GDP. Classical

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 1.8P

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Question

100%

Need help with this. Please show how to do the graph also. Thanks!

Shift the appropriate curve on the graph to illustrate the impact of this change in government spending.
PRICE LEVEL
++
AD
REAL GDP (Trillions of dollars)
The prescribed change in government spending will:
AS
AD
0
AS
O Move the economy toward full employment with no change in the price level
O Move the economy toward full employment and increase the price level
O Decrease the price level and move the economy toward full employment

4. The Keynesian and classical views of aggregate supply
Complete the following table by matching the macroeconomic assumptions about aggregate supply to the appropriate school of thought.
Keynesian Classical
Assumption
The economy naturally tends toward potential real GDP.
Product prices and production costs are flexible.
The following graph shows the aggregate demand (AD) and aggregate supply (AS) curves for a hypothetical economy that is currently operating below
its full-employment output level. That is, the economy is currently in a recession.
Keynesian/Classical
The aggregate supply curve (AS) in this diagram is consistent with the
government should
spending in response to the recession.
increase/decrease
view of aggregate supply. According to this viewpoint, the

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