Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Textbook Question
Chapter 26, Problem 16RQ
If the economy is suffering through a rampant inflationary period, would a Keynesian economist advocate for stabilization policy that involves higher taxes and higher interest rates? Explain your answer.
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Chapter 26 Solutions
Principles of Economics 2e
Ch. 26 - Do rational expectations tend to look back at past...Ch. 26 - Legislation proposes that the government should...Ch. 26 - Would it make sense to argue that rational...Ch. 26 - Summarize the Keynesian and Neoclassical models.Ch. 26 - Does neoclassical economics focus on the long term...Ch. 26 - Does neoclassical economics view prices and wages...Ch. 26 - What shape is the long-nm aggregate supply curve?...Ch. 26 - What is the difference between rational...Ch. 26 - A neoclassical economist and a Keynesian economist...Ch. 26 - Do neoclassical economists tend to focus more on...
Ch. 26 - Do neoclassical economists tend to focus more on...Ch. 26 - Do neoclassical economists see a value in...Ch. 26 - If aggregate supply is vertical, what role does...Ch. 26 - What is the shape of the neoclassical long-run...Ch. 26 - When the economy is experiencing a recession, why...Ch. 26 - If the economy is suffering through a rampant...Ch. 26 - If most people have rational expectations, how...Ch. 26 - Explain why the neoclassical economists believe...Ch. 26 - Economists from all theoretical persuasions...Ch. 26 - Is it a logical contradiction to be a neoclassical...Ch. 26 - Use Table 26.3 to answer the following questions....
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Similar questions
- Many central banks now indicate that their primary objective is to keep inflation at a persistently low rate. If the rate of inflation is persistently low, will this help reduce the instability of the business cycle? Why or why not?arrow_forwardWhy might a Keynesian Economist argue that a Federal Reserve policy alone will not get us out of a recession? ( explain in full response)arrow_forwardDiscuss the basic principles of the New Keynesian Economics and how it addresses perceived limitations to classic Keynesian theory.arrow_forward
- One practical limitation with Keynesian economics is the challenge of implementing active economic policy quickly. How severe is this problem and why? What is one example?arrow_forwardKeynesian 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?arrow_forwardDo you think policy makers should attempt to stabilize the economy ? Why ?arrow_forward
- Comparison between the classical and Keynesian theoryarrow_forwardAssume the U.S. economy is already operating above the full-employment level of GDP (i.e., above 2.5%). If the Trump tax cuts put additional upward pressure on GDP growth and inflation, fiscal policy should further increase government expenditures monetary policy should be raising interest rates monetary policy should do nothing monetary policy should decrease the growth rate of the money supplyarrow_forwardExplain in details how high inflation can lead to a recession in several ways.arrow_forward
- According to Keynesian Theory, stabilization policy (i.e. Aggregate Demand Management) should not be used to smooth out the business cycle. This is because there are 3 key problems with using ANY policy to stabilize the economy. Briefly discuss 2 of these problems below. Provide complete statements (i.e. in paragraph forms), do not list ideas.arrow_forwardIn a new nation that wants to follow the Friedman Rule, the real interest rate is 5% per year, real GDP grows at 1% per year, and the capital share of GDP is 30%. If the country wants to follow the Friedman rule, what annual inflation rate should the central bank aim for on average?arrow_forwardThe rational expectations assumption is unrealistic because, essentially, it amounts to the assumption that every consumer has perfect knowledge of the economy.” Discuss in the context of developing countries.arrow_forward
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