EBK MACROECONOMICS
10th Edition
ISBN: 9780134896571
Author: CROUSHORE
Publisher: VST
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Notice the major differences between our
Keynesian Cross (in your chapter 9 appendix)
and the Macro Equilibrium (AS and AD)
diagram? Which model has more to offer in
which situations?
Question Two
a) Use the Keynesian Cross to derive the IS
curve
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.
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- Brief explanation on keynesian model and its diagramarrow_forwardusing the Keynesian AD-AS diagram how can the economy be in a state of equilibrium at any level of real output where AD intersects ASarrow_forwardConsider the Keynesian IS-LM model. How would each of the following scenarios affect output, employment, the real interest rate and the price level in the short run? In the long run? Wealth decreases .An increase in immigration causes an increase in labor supply. The capital stock increases.arrow_forward
- Consider a standard AD-AS model. If the SRAS curve is steep, a temporary tax cut leads to a relatively small increase in inflation and relatively large decrease in unemployment.Answer true, false, or uncertain. Please briefly explain your answer.arrow_forwardHow would the level of aggregate demand be affected by a rise in the interest rate in the Keynesian theory? Which components would be affected most strongly?arrow_forwardAccording to the Keynesian model, which of the following would increase aggregate demand the most? a. Government drops the taxes for private businesses b. Government establishes a new agency financed by the government that helps the unemployed to find a job Increase in interest rates that results in the growth in investments into new equipment to O d. A decrease in government expenditures accompanied by the decrease in taxes e. Government expands its social projects and increases taxes to balance the budgetarrow_forward
- Using appropriate real-life macroeconomic example(s), compare and contrast Keynes' Law and Say's Law as they relate to aggregate demand and aggregate supply.arrow_forwardA friend of yours (who has not taken macroeconomics) has just read that Keynesian theory represented a direct attack on Classical theory. They don't understand either theory and knows you (having just taken macroeconomics) are well-versed in both. They ask you to explain the basic differences between how Keynes and the Classics understood the business cycle and their respective policy prescriptions. Your answer should probably include: a) a basic explanation of what full-employment GDP means and how it relates to the stability condition S=| (or, equivalently, leakages = injections); b) an explanation of why the Classicals believed that any movement away from full-employment GDP would be quickly fixed/reversed; c) an explanation of why Keynes thought the Classicals* "auto-correcting" story was problematic, i.e., a detailed explanation of Keynes' multiplier concept (how did Keynes believe a recession would unfold (step-by-step) and why did he believe it could persist); d) an explanation…arrow_forwardContrast Say’s law with Keynes Law, do they provide completely different interpretations of macroeconomic behavior? Provide examplesarrow_forward
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