Macroeconomics 8th Edition by David Colander

Exercise 4

Draw an AS/AD diagram from the Keynesian viewpoint. Assume the initial equilibrium in your diagram is just at the level of potential output. Then reduce the level of aggregate demand in your diagram. Now stare at this diagram.
a. Can you identify the excess capacity or depression in the diagram and what caused it?
b. What should be done to return the economy to a full employment level of output?
c. What does this exercise suggest about the distinction between economic theorizing (or positive economics) and policy recommendations (normative economics)?
d. Is one more value laden than the other? (Radical)