Economics: Private and Public Choice
16th Edition
ISBN: 9781337642224
Author: James D. Gwartney; Richard L. Stroup; Russell S. Sobel
Publisher: Cengage Learning US
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Chapter 11, Problem 2CQ
To determine
Keynesian view on the causes of fluctuation in output, and restoring the economy to the equilibrium position.
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Explain why economic fluctuations happen according to Keynesians. Why do expansions happen, and recessions?
Who is John Maynard Keynes? What time period did he write? What did he believe about the market’s ability to recover from a recession?
In the Keynesian model (that is, the short run), what causes recessions?
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Economics: Private and Public Choice
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- What policy changes would Keynes recommend to counteract a recession?arrow_forwardWhat industry sectors are most likely to add jobs during a down economy and an improving economy respectively? Are there employment sectors that are essentially unaffected by economic fluctuations?arrow_forwardCreate a graph that shows where Mexico currently is on the business cycle. Be sure to include an AD-AS Model graph that shows if the economy is currently experiencing a recessionary gap, expansionary gap, or long run equilibrium.arrow_forward
- What is Global Keynesianism?arrow_forwardSuppose the economy is operating at potential GDP when it experiences an increase in export demand. How might the economy increase production of exports to meet this demand, given that the economy is already at full employment?arrow_forwardExplain how might positive thinking help an economy expand? Demonstrate your explanation using the AD / AS graph as part of your answer.arrow_forward
- Depict in the AD-AS model, an economy exhibiting a short run equilibrium with a negative output gap resulting from a decline in AD caused by falling investment spending. What is true about the level of unemployment in this circumstance? What is true about the utilization of capital in this circumstance? What are the implications of your statements in parts a and b for long run adjustments in resource prices? How will these changes in resource prices impact the economy in the long run? Depict this change in your graph.arrow_forwardSuppose that an economy wants to boost available labor hours in order to increase aggregate supply. What is the best way to accomplish this?arrow_forwardWhat would a Keynesian likely recommend in response to a recession? What would a neoclassical likely recommend? Why would a Keynesian policy response not make much sense in response to a minor recession like the one that occurred in 1990? What would be the cost of letting the economy adjust by itself to a new long run equilibrium?arrow_forward
- If the economy is operating in the Keynesian zone of the SRAS curve and aggregate demand falls,what is likely to happen to real GDP?arrow_forwardIn the “real world” prices are not fixed, and hence the aggregate supply curve is not completely horizontal with a slope of zero. In order to illustrate why it is that aggregate supply curves slope up and to the right, Keynes made two crucial assumptions about the operation of the labor market. What were those two assumptions?arrow_forwardwhat are the perspectives of Keynes and Say regarding employment equilibrium and government intervention in the economy.arrow_forward
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