What did Keynes mean when he said that prices are sticky?OA. Prices are sticky because of cost-push inflation.OB. Prices, especially the price of labor, are inflexible downward.OC. Prices are inflexible upward due to the aversion people have to higher prices.OD. Prices need to be sticky or we would have cost-push inflation.If the prices were sticky, according to Keynes, this would then imply that theOA. long-run aggregate supply is vertical.OB. short-run aggregate demand horizontal.OC. long-run aggregate demand vertical.OD. short-run aggregate supply is horizontal.

Regarding the first question, Keynes referred to prices as "sticky" to describe their resistance to…

Answered: What did Keynes mean when he said that…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Price Level 0 A B Real GDP Comparing points A and B on this graph, which of the following is true? O At point B, there would be less employment and higher unemployment than at point A. O At point B, there would be a lower wage than at point A. O At point B, there is a higher price level that increases the quantity of real GDP supplied. O At point A, there is greater pressure on the price level and inflation than at point B. O At point A, with a lower wage rate, aggregate supply has decreased compared to point B.
1. Imagine an economy, where the SRAS in terms of inflation is given by II=5+Y, where Y is output. Imagine that the long run AS curve is given by Y=2. (25 marks) a) Give the equation of the AD curve (you can take liberties), if we assume that initially, the economy is at its long-run equilibrium. Justify. b) Imagine that your chosen AD curve's intercept goes up by one unit due to an expansionary monetary policy. What will be the new final equilibrium after this change? Justify. c) What will be the equilibrium after two periods of adjustment? Justify. d) Assume that before all the changes in the economy, in the initial, long-run equilibrium, the interest rate was 4 percent. Give an IS and an LM curve that are compatible with this initial equilibrium. Justify. e) What are the IS and LM curves going to be at the very end of the adjustment process, i.e., in the new long run equilibrium? Justify.
[Diagram required] An economy is in long run equilibrium with AD = 700 – 0.25p and ASO 0.25p - w + 500. The wage rate is w = 500. Now AS = 0.75p – w + 500. Be prepared to upload an AD/AS/LAS diagram showing all short-run and long-run equilibria: A, C, D. In the long run, D, the new wage will be equal to: |
Keynes believed that an increase in government expenditure during a recession would not result in significant inflation because he assumed that: Answers: A. Aggregate demand was vertical during a recession. B. The market would self-adjust to reach full employment. C. Aggregate supply was horizontal during a recession. D. The government would impose price ceilings during a recession.
Consider the Keynesian sticky wage model. Assume that the economy is operating close to, but not at, its zero lower bound (ZLB). Discuss the following: 1. Could a negative shock to the IS curve make the ZLB bind? Explain and illustrate graph- ically. 2. Could a shock to current productivity z make the ZLB bind? What would need to be the sign of this shock to make the ZLB bind? 3. In the data, in most episodes where the ZLB binds (the US in the wake of the Great Recession, Japan during the 1990s, and the US during the Great Depression), output is low. Given this, would a supply shock as the reason for a binding ZLB make empirical sense? 4. Intuitively, explain why changes in government spending have a bigger effect on output at the ZLB than away from it.
Based on the picture, explain what happens to the price level. Describe your answer.
According to Keynesian economists, if people in the economy are not spending enough then the __________ should step in to fill the gap. a federal reserve b markets c federal government d banks
Assume an ecomy operates in the intermediate range of its aggregate supply curve. State the direction of shif for the aggregate demand curve or aggregate supply curve for each of the following changes in conditions. What is the effect on the price level? On real GDP? On employment?
question 2: In Figure 2, 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?
Start at full-employment (FE) equilibrium with flexible wages and worker misperception of price level changes in the short run. Suppose then that we have an increase in Aggregate Demand. First, think about the short-run effects on price level (P), output level (Q), wage level (W), employment (L), and unemployment (U)? In the long run, once workers realize that there was a change in the price level, they will change the supply curve of labor. When all subsequent wage and price adjustments take place, we will be in a new long-run equilibrium. From the original full-employment (FE) equilibrium to the final one, what is the net change in the price level (P), output level (Q), the nominal wage (W), employment (L), unemployment rate (U), and the real wage (W/P)? Group of answer choices a) An increase in P, no change in Q, no change in W, an increase in L, an increase in U and no change in W/P. b) An increase in P, a decrease in Q, a decrease in W, a decrease in L, an…
Which of the following could potentially cause a recession? O AD increases, and wages are sticky. O AD increases, and wages are flexible. O AD falls, and wages are flexible. AD decreases, and wages are sticky.
Explain how a rise in Mt, V, and Yt afects the price level according to thequantity theory.

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