What would a Keynesian likely recommend in response to a recession? Take a look again at Figure 1 (originally from the page in the text titled "Neoclassical and Keynesian Perspectives in the AD-AS Model.")Price LevelPnPiPkADKADYkADnEk Keynesian zoneReal GDPEiLRASEnSRASNeoclassical zoneIntermediate zoneYi YnFigure 1. Keynes, Neoclassical, and Intermediate Zones in the AggregateSupply Curve. Near the equilibrium Ek, In the Keynesian zone at the far left of theSRAS curve, small shifts in AD, elther to the right or the left, will affect the outputlevel Yk, but will not much affect the price level. In the Keyneslan zone, ADlargely determines the quantity of output. Near the equilibrium En. In theneoclassical zone at the far right of the SRAS curve, small shifts in AD, elther tothe right or the left, will have relatively little effect on the output level Yn, butInstead will have a greater effect on the price level. In the neoclassical zone, thenear-vertical SRAS curve close to the level of potential GDP largely determinesthe quantity of output. In the Intermediate zone around equilibrium El movementIn AD to the right will increase both the output level and the price level, while amovement In AD to the left would decrease both the output level and the pricelevel.Think about a minor recession, like the one that occurred in 1990. (Hint: a minor recessioncould be caused by a slight shift to the left in the AD curve.)

The appropriate response to a recession, in accordance with Keynesian macroeconomic theory, is to…

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What would a Keynesian likely recommend in response to a recession?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter22: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 1P

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Question

What would a Keynesian likely recommend in response to a recession?

Take a look again at Figure 1 (originally from the page in the text titled "Neoclassical and Keynesian Perspectives in the AD-AS Model.")
Price Level
Pn
Pi
Pk
ADK
AD
Yk
ADn
Ek Keynesian zone
Real GDP
Ei
LRAS
En
SRAS
Neoclassical zone
Intermediate zone
Yi Yn
Figure 1. Keynes, Neoclassical, and Intermediate Zones in the Aggregate
Supply Curve. Near the equilibrium Ek, In the Keynesian zone at the far left of the
SRAS curve, small shifts in AD, elther to the right or the left, will affect the output
level Yk, but will not much affect the price level. In the Keyneslan zone, AD
largely determines the quantity of output. Near the equilibrium En. In the
neoclassical zone at the far right of the SRAS curve, small shifts in AD, elther to
the right or the left, will have relatively little effect on the output level Yn, but
Instead will have a greater effect on the price level. In the neoclassical zone, the
near-vertical SRAS curve close to the level of potential GDP largely determines
the quantity of output. In the Intermediate zone around equilibrium El movement
In AD to the right will increase both the output level and the price level, while a
movement In AD to the left would decrease both the output level and the price
level.
Think about a minor recession, like the one that occurred in 1990. (Hint: a minor recession
could be caused by a slight shift to the left in the AD curve.)

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