Exam 12: Keynesian Business Cycle Analysis: Non Market Clearing Macroeconomics

In the long run in the Keynesian model,a beneficial supply shock would leave the economy with a higher level of output,but also a ________ real interest rate and a ________ price level.

Suppose the government decided to tighten monetary policy and decrease government expenditures.In the short run in the Keynesian model,the effect of these policies would be to ________ the real interest rate and ________ the level of output.

The short-run aggregate supply curve is upward sloping

In the Keynesian model in the short run,an increase in the money supply will cause

The following equations describe a Keynesian model of the economy: Cᵈ = 500 - 0.5(Y - T)- 100r Iᵈ ⁼ 350 - 100r L = 0.5Y - 200i πᵉ = 0.05,G = T = 200,Y = 1850 M = 3560 a.Find the full-employment equilibrium values of the real interest rate,consumption,investment,and the price level. b.Suppose government purchases decline to 175,with no change in taxes.What happens to the real interest rate,output,consumption,and investment in the short run (in which the price level is fixed)? What happens in the long run to the real interest rate,consumption,investment,and the price level? c.Suppose instead that government purchases rise to 225,with no change in taxes,starting from the equilibrium in part (a).What happens to the real interest rate,output,consumption,and investment in the short run (in which the price level is fixed)? What happens in the long run to the real interest rate,consumption,investment,and the price level?

According to Keynesians,the primary source of business cycle fluctuations is

To use fiscal expansion to fight a recession without discouraging investment,we must have ________ monetary policy and ________ fiscal policy

You are the liaison between the Bank of Canada and the Department of Finance.Your goal is to coordinate policy efforts to achieve full-employment output in the economy while keeping a fixed real interest rate.You must recommend tightening or easing both monetary and fiscal policies to do this.What would your recommendation be in each of the following situations? a.People decide to increase saving. b.Expected inflation declines. c.The future marginal productivity of capital declines. d.There's an adverse oil price shock in which the LM curve moves farther to the left than does the FE line

Which of the following is true in the Keynesian model?

Japan experienced a near zero,even negative,economic growth for most of the 1990s.One of the solutions suggested by the Keynesian economists to the deep Japanese recession was to use an expansionary monetary policy.Japanese government followed this advice by announcing increasing money supply and lowering the interest rates to a near zero.Unfortunately,the economy did not recover.Using the IS-LM model,explain why the expansionary monetary policy did not work in Japan? What are the alternative Keynesian solutions to the Japanese recession?

A Keynesian economy is described by the following equations: Cᵈ = 250 + 0.5(Y - T)- 250r Iᵈ = 250 - 250r G = 300 T = 300 L = 0.5Y - 500r + πᵉ ᴹ = 3000 Y = 1250 πᵉ = 0 a.Calculate the values of the real interest rate,the price level,consumption,and investment for the economy in general equilibrium. b.Now suppose government purchases increase to 350 with no change in taxes.What will be the real interest rate,the price level,output,consumption,and investment in the short run? c.What will be the real interest rate,the price level,output,consumption,and investment in the long run?

In the Keynesian model,wages and prices are

Consider the following short run aggregate supply equation: Y = $\hat Y$ + b (P - Pᵉ),where Y is the real output, $\hat Y$ is the full employment output,P and Pᵉ are the actual and expected price levels,respectively.Which of the following is correct?

Keynesians explain the procyclical behaviour of average labour productivity by introducing the concept of

In the Keynesian model,the difference between no intervention by the government during a recession and intervention using expansionary monetary or fiscal policy is that no intervention will return the economy to its equilibrium level of output ________ than intervention will and at a ________ price level.

In the Keynesian model,the economy can be off the FE line and the LRAS curve in the short run because

In the Keynesian model,the short run aggregate supply curve is

The main difference between the short-run and the long-run aggregate supply in the Keynesian model is

The crowding-out effect will probably occur when

The crowing-out effect occurs because of