The means by which an increase in government purchases impacts upon the level of output and the rate of real interest in the long run and the short run as suggested by the Keynesian school of thought.

Question

Want to see the full answer?

Answer 1

Question

Chapter 11, Problem 6RQ

To determine

To Explain: The means by which an increase in government purchases impacts upon the level of output and the rate of real interest in the long run and the short run as suggested by the Keynesian school of thought.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Figure 1: Hayek’s (Classical) AD-AS Model 1.1. Hayek says that markets will heal themselves and that government should not intervene. How does the AD-AS model reflect Hayek’s idea that governments cannot increase real GDP beyond the level that the free market economy is able to produce? 1.2. Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not? Figure 2: Keynes’s AD-AS Model 2.1. In Figure 2 above, what are the factors that may cause the aggregate demand to shift from AD to AD1? What is the difference between demand pull inflation, cost push inflation and recession? 2.2. In macroeconomics, the immediate short run is known as a length of time when both input prices and output prices are fixed. In the short-run, input prices are fixed but output prices are variable. In the long run, input prices and output prices can vary. Describe the AS curve in the Immediate Short run. Describe the AS curve…

Starting from general equilibrium, what would be the long-run effects of a simultaneous reduction in government purchases (G↓) and increase in the money supply (M↑) designed to leave real GDP the same on each of the following economic variables? For each, you should write one of the following responses: Up (U), Down (D), orSame (S) The real interest rate (r) Investment (I) Consumption (C) The price level (P) Budget deficit (G – T) Future standard of living (i.e., future per capita consumption)

Keynesian economics defends budget balance. However, according to economists, budget balance may exacerbate the effects of the business cycle. Isn't it also a Keynesian view to use discretionary policy to smoothen the business cycles? Aren't those two views contradictory?