The key assumption of basic Keynesian model and its impact on short-run economic fluctuations.

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Answer 1

Question

Chapter 11, 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.

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Answer 2

Question

Chapter 11, 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.

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Answer 3

Question

Chapter 11, 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.

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Answer 4

Question

Chapter 11, 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.

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Answer 5

Chapter 11, 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.

Answer 6

Chapter 11, 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.

Answer 7

Chapter 11, Problem 1RQ

To determine

The key assumption of basic Keynesian model and its impact on short-run economic fluctuations.

Answer 8

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.