PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Question
Chapter 13, Problem 1RQ
To determine
The key assumption of basic Keynesian model and its impact on short-run economic fluctuations.
Expert Solution & Answer
Explanation of Solution
The key assumption of the basic Keynesian model or the Keynesian cross is that ‘in the short run, firms meet the demand for their products at preset prices. This would mean that firms fixed a price for some period and meet the demand at the predetermined price rather to respond every change in the demand for their product. The fact is that firms do not change their prices frequently due to the menu cost. If the firms produce to meet the demand, then changes in demand dictates the level of output in the short run.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
The COVID-19 pandemic continues to present new challenges to the Australian economy. The Treasury has announced that they continue to support the economy by adding $41 billion in direct economic support, bringing total support since the beginning of the pandemic to $291 billion as of May 2021. Using a AD-AS graph, illustrate how this support would impact on economic growth and inflation in the short and long term
Consumption, investment, government spending, exports, and imports are:
Group of answer choices
all complementary elements of a market-orientated economy.
some of the opposing elements found in a market-orientated economy.
all components of aggregate demand.
some of the building blocks of Keynesian analysis.
Which of the following is a correct statement about the difference between chain-weighted and fixed-weight real GDP growth rates?
a) Chain-weighted growth rates are more accurate if prices are rising slowly. Fixed-weight growth rates are more accurate when prices are rising rapidly.
b) Chain-weighted growth rates depend on the choice of base year. Fixed-weight growth rates do not.
c) Chain-weighted growth rates tend to be larger, the earlier is the base year. This is not the case for fixed-weight growth rates.
d) Fixed-weighted growth rates tend to decline when the base year is updated. Chain-weighted growth rates do not.
Chapter 13 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
Knowledge Booster
Similar questions
- Keynesian economics predicts that if government policy makers deem current equilibrium real Gross Domestic Product (GDP) to be "too low," then an appropriate policy action would be to do nothing, because the economy is self-adjusting. raise government spending, thereby increasing aggregate demand and pushing up real Gross Domestic Product (GDP) with little or no inflationary consequences. increase taxes, thereby causing aggregate demand to increase and inducing a rise in real Gross Domestic Product (GDP) with little or no inflationary consequences. reduce the money stock, thereby causing aggregate demand to decrease and inducing a rise in fall in the price level that generates an increase in total planned expenditures.arrow_forwardKeynesian Cross and Equilibrium in the Goods Market. Z=Y. Show graphically and functionally.arrow_forwardWhich of the following scenarios is an example of a recognition lag? The economy: a)enters a deep recession on the same day that new quarterly data show positive economic growth. b)enters a deep recession, and parliament takes two months to approve an extensive tax-cut bill.b) c)enters a deep recession, and parliament passes spending bills for public works projects that will take years to plan and build. Which of the following scenarios is an example of an administrative lag? a)Policy makers obtain relevant economic data months after a recession has already begun. b)A new law requires that all new spending bills go through at least one month of debate before receiving a parliament vote. c)In response to a recession, parliament passes a spending bill for motorway upgrades that will take years to plan and complete Government financing of deficit spending can offset the deficit's expansionary effect if government borrowing increases interest…arrow_forward
- State the assumptions of the 4th generation Keynesian model and explain how its endogenous variables are determined graphically Graphically demonstrate how to construct an IS(LM) curve. State the product market equilibrium condition, define an IS curve and explain why it is downward sloping.arrow_forwardWhich of the following statements of fact about the role of the Canadian government in the economy is MOST consistent with Keynesian economic theory? a. Canadian Crown corporations, such as Canada Post and the Canadian Dairy Commission, are run at a a cost to taxpayers b. The regulation of industry in Canada ensure worker safety standards are met. c. Crown corporations provide competition to the private sector of the economy d. The Canadian government, through the Bank of Canada, can increase or decrease the rate of economic growtharrow_forwardAssume that the housing market is in equilibrium in year 1. In year 2, the mortgage rate that banks charge consumers decreases, but producers are not affected. Also in year 2, the cost of lumber used to build homes decreases. Which of the following is most likely to be the equilibrium change? a The equilibrium will be at point C before the change in expectations and point B after the change b The equilibrium will be at point A before the change in expectations and point B after the change c The equilibrium will be at point A before the change in expectations and point E after the change d The equilibrium will be at point E before the change in expectations and point A after the changearrow_forward
- Changes in macroeconomic indicators can often be of relevance to business and influence decision-making concerning a range of issues related to things like profit forecasts, expected sales growth, expansion plans, etc. Assume you are employed as a business analyst with a large Singaporean based multinational corporation that manufactures electronic products. Identify and discuss how a major export market where electronic goods are sold experiences accelerating inflation.arrow_forwardAccording to the AS-AD model, which of the following is true about output when there is an increase in the AD and no other change? (Select all that are true) There is a decrease in output in the short run There is an increase in output in the long run There is an increase in output in the short run There is no change in output in the long run There is no change in output in the short run There is a decrease in output in the long runarrow_forwardThe Great Recession was characterized by a collapse in housing prices, and a subsequent crunch in credit. Begin with the market for bank loans in equilibrium. A credit crunch occurs when the supply of bank loans contract leading to higher interest rates on bank loans. As interest rates on bank loans increase, what happens to durable consumption and planned investment, and why? These changes alter the Keynesian PAE model.arrow_forward
- Covid-19 global economic pandemic has negatively affected economies as a whole at the global, national and regional levels. The novel effects of the fluidity of Covid-19 appears to continue to have negative impacts on the macro business model as the global recession seems to be inevitable. You are working as a macroeconomist in economic affairs in your local country, and you are tasked with analyzing the impact of Post-Covid-19 on the economy and you are required to prepare notes on what specific government policies can be implemented as a stimulus package to jump-start the economy savings and investment market. The team meeting will be held in 3 days from the date of the assignment and because of limitation of time the Chief economist has given you the following guidelines: (a) You are required to identify four (4) key macroeconomic issues from the impact of Covid-19, (b) For each issue identify in (a) explain in detail what specific government Post-Covid-19 policy/ies would you…arrow_forwardCovid-19 global economic pandemic has negatively affected economies as a whole at the global, national and regional levels. The novel effects of the fluidity of Covid-19 appears to continue to have negative impacts on the macro business model as the global recession seems to be inevitable. You are working as a macroeconomist in economic affairs in your local country, and you are tasked with analyzing the impact of Post-Covid-19 on the economy and you are required to prepare notes on what specific government policies can be implemented as a stimulus package to jump-start the economy savings and investment market. The team meeting will be held in 3 days from the date of the assignment and because of limitation of time the Chief economist has given you the following guidelines: (a) You are required to identify four (4) key macroeconomic issues from the impact of Covid-19, (b) For each issue identify in (a) explain in detail what specific government Post-Covid-19 policy/ies would you…arrow_forwardCompare and contrast the ideas of Keynes and the policies based on his ideas with the ideas and policies of the supply-side economists who came to prominence with the election of Ronald Reagan in 1980.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Macroeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506756Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Macroeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning