Why would a Keynesian policy response not make much sense in response to a minor recession like the one that occurred in 1990?Please make response as simple as possible. Take a look again at Figure 1 (originally from the page in the text titled "Neoclassical and Keynesian Perspectives in the AD-AS Model.")Price LevelPnPiPkADKADYkADnEk Keynesian zoneReal GDPEiLRASEnSRASNeoclassical zoneIntermediate zoneYi YnFigure 1. Keynes, Neoclassical, and Intermediate Zones in the AggregateSupply Curve. Near the equilibrium Ek, In the Keynesian zone at the far left of theSRAS curve, small shifts in AD, elther to the right or the left, will affect the outputlevel Yk, but will not much affect the price level. In the Keyneslan zone, ADlargely determines the quantity of output. Near the equilibrium En. In theneoclassical zone at the far right of the SRAS curve, small shifts in AD, elther tothe right or the left, will have relatively little effect on the output level Yn, butInstead will have a greater effect on the price level. In the neoclassical zone, thenear-vertical SRAS curve close to the level of potential GDP largely determinesthe quantity of output. In the Intermediate zone around equilibrium El movementIn AD to the right will increase both the output level and the price level, while amovement In AD to the left would decrease both the output level and the pricelevel.Think about a minor recession, like the one that occurred in 1990. (Hint: a minor recessioncould be caused by a slight shift to the left in the AD curve.)

The appropriate response to a recession, in accordance with Keynesian macroeconomic theory, is to…

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Why would a Keynesian policy response not make much sense in response to a minor recession like the one that occurred in 1990?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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