In the Keynesian framework, which of the following events might cause a recession? Which might cause inflation? Sketch AD/AS diagrams to illustrate your answers. A large Increase In the price of the homes people own. Rapid growth in the economy of a major trading partner. The development of a major new technology offers profitable opportunities for business. The Interest rate rises. The good imported from a major trading partner become much less expensive.

Question

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Answer 1

Textbook Question

Chapter 25, Problem 1SCQ

In the Keynesian framework, which of the following events might cause a recession? Which might cause inflation? Sketch AD/AS diagrams to illustrate your answers.

A large Increase In the price of the homes people own.
Rapid growth in the economy of a major trading partner.
The development of a major new technology offers profitable opportunities for business.
The Interest rate rises.
The good imported from a major trading partner become much less expensive.

Expert Solution

To determine

(a)

Whether “A large increase in the price of the homes that people own” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

Large increase in the home prices leads to inflation in economy. As output remains same, demand is higher, which leads to rightward shift of AD, this will lead to increase in price level and inflation.

Expert Solution

To determine

(b)

Whether “Rapid growth of major trading partner” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

As there is growth in trading company, it means our exports will decline, this will lead to fall in aggregate demand which will lead to fall in income, output and price level. It will lead to recession.

Expert Solution

To determine

(c)

Whether “The development of a major new technology offers profitable opportunities for business” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

New technology means increase in productivity growth, which induces business man to invest in economy. As investment increases, aggregate demand will increase, leading to increase in output, price level. It will mitigate recession.

Expert Solution

To determine

(d)

Whether “the interest rate rises” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

As interest rate increases, it becomes costlier for firms to invest as cost of borrowing increases. This will lead to more recession in an economy.

Expert Solution

To determine

(e)

Whether “the goods imported from a major trading partner become much less expensive” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

As imports become cheaper, it leads to more demand of imports, thereby declining aggregate demand. As AD falls, it will lead to less output, it will increase recession.

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Answer 2

Textbook Question

Chapter 25, Problem 1SCQ

In the Keynesian framework, which of the following events might cause a recession? Which might cause inflation? Sketch AD/AS diagrams to illustrate your answers.

A large Increase In the price of the homes people own.
Rapid growth in the economy of a major trading partner.
The development of a major new technology offers profitable opportunities for business.
The Interest rate rises.
The good imported from a major trading partner become much less expensive.

Expert Solution

To determine

(a)

Whether “A large increase in the price of the homes that people own” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

Large increase in the home prices leads to inflation in economy. As output remains same, demand is higher, which leads to rightward shift of AD, this will lead to increase in price level and inflation.

Expert Solution

To determine

(b)

Whether “Rapid growth of major trading partner” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

As there is growth in trading company, it means our exports will decline, this will lead to fall in aggregate demand which will lead to fall in income, output and price level. It will lead to recession.

Expert Solution

To determine

(c)

Whether “The development of a major new technology offers profitable opportunities for business” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

New technology means increase in productivity growth, which induces business man to invest in economy. As investment increases, aggregate demand will increase, leading to increase in output, price level. It will mitigate recession.

Expert Solution

To determine

(d)

Whether “the interest rate rises” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

As interest rate increases, it becomes costlier for firms to invest as cost of borrowing increases. This will lead to more recession in an economy.

Expert Solution

To determine

(e)

Whether “the goods imported from a major trading partner become much less expensive” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

As imports become cheaper, it leads to more demand of imports, thereby declining aggregate demand. As AD falls, it will lead to less output, it will increase recession.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Textbook Question

Chapter 25, Problem 1SCQ

In the Keynesian framework, which of the following events might cause a recession? Which might cause inflation? Sketch AD/AS diagrams to illustrate your answers.

A large Increase In the price of the homes people own.
Rapid growth in the economy of a major trading partner.
The development of a major new technology offers profitable opportunities for business.
The Interest rate rises.
The good imported from a major trading partner become much less expensive.

Expert Solution

To determine

(a)

Whether “A large increase in the price of the homes that people own” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

Large increase in the home prices leads to inflation in economy. As output remains same, demand is higher, which leads to rightward shift of AD, this will lead to increase in price level and inflation.

Expert Solution

To determine

(b)

Whether “Rapid growth of major trading partner” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

As there is growth in trading company, it means our exports will decline, this will lead to fall in aggregate demand which will lead to fall in income, output and price level. It will lead to recession.

Expert Solution

To determine

(c)

Whether “The development of a major new technology offers profitable opportunities for business” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

New technology means increase in productivity growth, which induces business man to invest in economy. As investment increases, aggregate demand will increase, leading to increase in output, price level. It will mitigate recession.

Expert Solution

To determine

(d)

Whether “the interest rate rises” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

As interest rate increases, it becomes costlier for firms to invest as cost of borrowing increases. This will lead to more recession in an economy.

Expert Solution

To determine

(e)

Whether “the goods imported from a major trading partner become much less expensive” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

As imports become cheaper, it leads to more demand of imports, thereby declining aggregate demand. As AD falls, it will lead to less output, it will increase recession.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Textbook Question

Chapter 25, Problem 1SCQ

In the Keynesian framework, which of the following events might cause a recession? Which might cause inflation? Sketch AD/AS diagrams to illustrate your answers.

A large Increase In the price of the homes people own.
Rapid growth in the economy of a major trading partner.
The development of a major new technology offers profitable opportunities for business.
The Interest rate rises.
The good imported from a major trading partner become much less expensive.

Expert Solution

To determine

(a)

Whether “A large increase in the price of the homes that people own” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

Large increase in the home prices leads to inflation in economy. As output remains same, demand is higher, which leads to rightward shift of AD, this will lead to increase in price level and inflation.

Expert Solution

To determine

(b)

Whether “Rapid growth of major trading partner” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

As there is growth in trading company, it means our exports will decline, this will lead to fall in aggregate demand which will lead to fall in income, output and price level. It will lead to recession.

Expert Solution

To determine

(c)

Whether “The development of a major new technology offers profitable opportunities for business” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

New technology means increase in productivity growth, which induces business man to invest in economy. As investment increases, aggregate demand will increase, leading to increase in output, price level. It will mitigate recession.

Expert Solution

To determine

(d)

Whether “the interest rate rises” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

As interest rate increases, it becomes costlier for firms to invest as cost of borrowing increases. This will lead to more recession in an economy.

Expert Solution

To determine

(e)

Whether “the goods imported from a major trading partner become much less expensive” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

As imports become cheaper, it leads to more demand of imports, thereby declining aggregate demand. As AD falls, it will lead to less output, it will increase recession.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

Expert Solution

To determine

(a)

Whether “A large increase in the price of the homes that people own” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

Large increase in the home prices leads to inflation in economy. As output remains same, demand is higher, which leads to rightward shift of AD, this will lead to increase in price level and inflation.

Expert Solution

To determine

(b)

Whether “Rapid growth of major trading partner” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

As there is growth in trading company, it means our exports will decline, this will lead to fall in aggregate demand which will lead to fall in income, output and price level. It will lead to recession.

Expert Solution

To determine

(c)

Whether “The development of a major new technology offers profitable opportunities for business” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

New technology means increase in productivity growth, which induces business man to invest in economy. As investment increases, aggregate demand will increase, leading to increase in output, price level. It will mitigate recession.

Expert Solution

To determine

(d)

Whether “the interest rate rises” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

As interest rate increases, it becomes costlier for firms to invest as cost of borrowing increases. This will lead to more recession in an economy.

Expert Solution

To determine

(e)

Whether “the goods imported from a major trading partner become much less expensive” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

As imports become cheaper, it leads to more demand of imports, thereby declining aggregate demand. As AD falls, it will lead to less output, it will increase recession.

Answer 8

Expert Solution

To determine

(a)

Whether “A large increase in the price of the homes that people own” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

Large increase in the home prices leads to inflation in economy. As output remains same, demand is higher, which leads to rightward shift of AD, this will lead to increase in price level and inflation.

Answer 9

Expert Solution

Answer 10

Expert Solution

Answer 11

Expert Solution

Answer 12

To determine

(a)

Whether “A large increase in the price of the homes that people own” will cause inflation or recession is to be determined.

Answer 13

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Answer 14

Explanation of Solution

Large increase in the home prices leads to inflation in economy. As output remains same, demand is higher, which leads to rightward shift of AD, this will lead to increase in price level and inflation.

Answer 15

Expert Solution

To determine

(b)

Whether “Rapid growth of major trading partner” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

As there is growth in trading company, it means our exports will decline, this will lead to fall in aggregate demand which will lead to fall in income, output and price level. It will lead to recession.

Answer 16

Expert Solution

Answer 17

Expert Solution

Answer 18

Expert Solution

Answer 19

To determine

(b)

Whether “Rapid growth of major trading partner” will cause inflation or recession is to be determined.

Answer 20

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Answer 21

Explanation of Solution

As there is growth in trading company, it means our exports will decline, this will lead to fall in aggregate demand which will lead to fall in income, output and price level. It will lead to recession.

Answer 22

Expert Solution

To determine

(c)

Whether “The development of a major new technology offers profitable opportunities for business” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

New technology means increase in productivity growth, which induces business man to invest in economy. As investment increases, aggregate demand will increase, leading to increase in output, price level. It will mitigate recession.

Answer 23

Expert Solution

Answer 24

Expert Solution

Answer 25

Expert Solution

Answer 26

To determine

(c)

Whether “The development of a major new technology offers profitable opportunities for business” will cause inflation or recession is to be determined.

Answer 27

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Answer 28

Explanation of Solution

New technology means increase in productivity growth, which induces business man to invest in economy. As investment increases, aggregate demand will increase, leading to increase in output, price level. It will mitigate recession.

Answer 29

Expert Solution

To determine

(d)

Whether “the interest rate rises” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

As interest rate increases, it becomes costlier for firms to invest as cost of borrowing increases. This will lead to more recession in an economy.

Answer 30

Expert Solution

Answer 31

Expert Solution

Answer 32

Expert Solution

Answer 33

To determine

(d)

Whether “the interest rate rises” will cause inflation or recession is to be determined.

Answer 34

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Answer 35

Explanation of Solution

As interest rate increases, it becomes costlier for firms to invest as cost of borrowing increases. This will lead to more recession in an economy.

Answer 36

Expert Solution

To determine

(e)

Whether “the goods imported from a major trading partner become much less expensive” will cause inflation or recession is to be determined.

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Explanation of Solution

As imports become cheaper, it leads to more demand of imports, thereby declining aggregate demand. As AD falls, it will lead to less output, it will increase recession.

Answer 37

Expert Solution

Answer 38

Expert Solution

Answer 39

Expert Solution

Answer 40

To determine

(e)

Whether “the goods imported from a major trading partner become much less expensive” will cause inflation or recession is to be determined.

Answer 41

Answer to Problem 1SCQ

Inflation is the persistent increase in general price level over a period of time in an economy.

Recession is the general slowdown of economic activity.

Answer 42

Explanation of Solution

As imports become cheaper, it leads to more demand of imports, thereby declining aggregate demand. As AD falls, it will lead to less output, it will increase recession.