Exam 26: The Keynesian Short-Run Policy Model: Demand-Side Policies

Assuming the economy is in long-run equilibrium,using an AS/AD diagram,demonstrate graphically and explain verbally the long-run impact on the price level and real output of an expectation by business executives of a recession in the near future.

If the price level had more flexibility,would recessions and depressions be less likely?

Keynes believed that:

Refer to the following diagram. A decline in U.S. housing prices, as in 2007, pushed the AD curve from AD₁ to AD₂. Dynamic feedback effects that would destabilize the economy could shift:

Refer to the graph shown. A movement from A to B is most likely to be caused by:

An increase in the price level might cause:

A fall in the U.S. price level will cause foreigners to:

A decrease in the expected future income of the United States would likely:

Keynes did not agree with the way the Classical economists described the workings of the economy.What was the essence of his thinking?

If actual output exceeds potential output for a prolonged period of time, we would eventually expect factor prices to:

In the AS/AD model, as the price level falls, the holders of money become richer and buy more. This is one reason why the aggregate demand curve is downward sloping.

The repercussions that the money wealth and international effects have on aggregate production and aggregate expenditure cause the aggregate demand curve to become steeper than it would be without such repercussions.

The long-run aggregate supply curve shows the output level that an economy can produce when:

Refer to the graph shown. If the economy is at point D, which of the following policies is most appropriate to bring the economy to potential?

If a country is experiencing high inflation, other things equal, the expectations of worsening inflation in the future would probably:

Suppose that consumer spending is expected to decrease in the near future. If output is at potential output, which of the following policies is most appropriate according to the AS/AD model?

If the depreciation of a country's currency increases its aggregate expenditures by 20, the AD curve will:

Refer to the graph shown. During the Reagan Administration (1981 to 1989), tax rates were reduced significantly, while federal defense spending rose by 80 percent. The effect of these policies on the AD curve is best shown as a movement from:

If the price level falls but people don't feel richer because of that fall, then the AD curve would likely:

The reason why the AS/AD model does not depend upon the concepts of substitution and opportunity cost is that: