Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 11, Problem 2CQ
To determine
Keynesian view on the causes of fluctuation in output, and restoring the economy to the equilibrium position.
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How 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?
In the Keynesian framework, which of the following events might cause a recession? Which might causeinflation? Sketch AD/AS diagrams to illustrate your answers.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 become much less expensive.
If the economy is operating in the Keynesian zone of the SRAS curve and aggregate demand falls,what is likely to happen to real GDP?
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Economics: Private and Public Choice (MindTap Course List)
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- did keynes believe that wages/prices were sticky in general-up and down? or just down?arrow_forwardAccording to Keynesian business cycle theory, what should the government do in response to a recession? A. Cut government spending B. Increase government spending C. Increase interest rates D. Expand the money supply E. A and D F. B and Darrow_forwardExplain why economic fluctuations happen according to Keynesians. Why do expansions happen, and recessions?arrow_forward
- 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?arrow_forwardWhat are some problems with Keynesian business cycle theory? A. It does not predict stagflation B. Falling aggregate demand may be a symptom, not cause, of recession C. Wages are only sticky during recessions D. A and B E. B and Carrow_forwardHow 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?arrow_forward
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