Principles of Macroeconomics 2e
2nd Edition
ISBN: 9781947172388
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Textbook Question
Chapter 13, Problem 2SCQ
Legislation proposes that the government should use
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Legislation proposes that the government should use macroeconomic policy to achieve an unemployment rate of zero percent, by increasing aggregate demand for as much and as long as necessary to accomplish this goal. From a neoclassical perspective, how will this policy affect output and the price level in the short run and in the long run? Sketch an aggregate demand/aggregate supply diagram to illustrate your answer.
Suppose that the graph below represents the aggregate demand (AD) and aggregate supply (AS) of
Guadeloupe. What will happen to Guadeloupe's economy in the long-run, according to the neoclassical
view?
Potential GDP
OO
Price Level
AS
AD
Real GDP
Guadeloupe's aggregate supply (AS) will shift to the left.
Guadeloupe's potential GDP line will shift to the right.
Guadeloupe's aggregate supply (AS) will shift to the right.
Guadeloupe's aggregate demand (AD) will shift to the left.
Aggregate Supply: Explain whether the economy is currently operating in the Keynesian, intermediate or neoclassical portion of the economy's aggregate curve. Also, point out a time when the economy may have been operating at another portion of the aggregate supply curve.
Chapter 13 Solutions
Principles of Macroeconomics 2e
Ch. 13 - Do rational expectations tend to look back at past...Ch. 13 - Legislation proposes that the government should...Ch. 13 - Would it make sense to argue that rational...Ch. 13 - Summarize the Keynesian and Neoclassical models.Ch. 13 - Does neoclassical economics focus on the long term...Ch. 13 - Does neoclassical economics view prices and wages...Ch. 13 - What shape is the long-nm aggregate supply curve?...Ch. 13 - What is the difference between rational...Ch. 13 - A neoclassical economist and a Keynesian economist...Ch. 13 - Do neoclassical economists tend to focus more on...
Ch. 13 - Do neoclassical economists tend to focus more on...Ch. 13 - Do neoclassical economists see a value in...Ch. 13 - If aggregate supply is vertical, what role does...Ch. 13 - What is the shape of the neoclassical long-run...Ch. 13 - When the economy is experiencing a recession, why...Ch. 13 - If the economy is suffering through a rampant...Ch. 13 - If most people have rational expectations, how...Ch. 13 - Explain why the neoclassical economists believe...Ch. 13 - Economists from all theoretical persuasions...Ch. 13 - Is it a logical contradiction to be a neoclassical...Ch. 13 - Use Table 26.3 to answer the following questions....
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Similar questions
- Why would neoclassical economists think that the government doesn't need to take many steps to combat unemployment? Whether you concur or disagree Explain.arrow_forwardOther things equal, what effects would each of the following have on aggregate demand or aggregate supply? In each case use a diagram to show the expectedeffects on the equilibrium price level and the level ofreal output.a. A reduction in the economy’s real interest rate.b. A major increase in federal spending for healthcare (with no increase in taxes).c. The complete disintegration of OPEC, causing oilprices to fall by one-half. d. A 10 percent reduction in personal income taxrates (with no change in government spending).e. A sizable increase in labor productivity (with nochange in nominal wages).f. A 12 percent increase in nominal wages (with nochange in productivity).g. A sizable depreciation in the international value ofthe dollar.arrow_forwardSummarize the Neoclassical model: A. The neoclassical model is built on the importance of aggregate demand as a cause of business cycles and a degree of wage and price rigidity, and thus does a sound job of explaining many recessions and why cyclical unemployment rises and falls. B. The neoclassical model emphasizes aggregate supply by focusing on the underlying determinants of output and employment in markets, and thus tends to put more emphasis on economic growth and how labor markets work. C. The neoclassical model is built on the importance of aggregate supply as a cause of business cycles and a degree of wage and price rigidity, but does a poor job of explaining many recessions and why cyclical unemployment rises and falls.arrow_forward
- 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: Price level Multiple Choice O B O A to B A to C A to D. C AD1 ADO BOTOXI AD2 Real output Submiarrow_forwardDoes neoclassical economics focus on the long term or the short term? Explain your answer.arrow_forwardExplain the dynamic effect by taking "Oil Prices and Inflation" as an example?arrow_forward
- What is supply-side or "trickle-down" economics? Why do Keynesians reject supply-side economics? Does the history of the marginal income tax structure in the U.S. support or challenge the idea of tickle down economics?arrow_forwardWhat happens when firms and workers underestimate future prices in the economy? Focus your answer on what would happen to actual output as opposed to the expected potential output. (Course is macroeconomics).arrow_forwardIf the economy has rational expectations and the model is sticky price model. Could you explain why the following statement true in macroeconomics?arrow_forward
- When the economy is experiencing a recession, why would a neoclassical economist be unlikely to argue for aggressive policy to stimulate aggregate demand and return the economy to full employment? Explain your answer.arrow_forwardDo neoclassical economists tend to focus more on long term economic growth or on recessions? Explain briefly.arrow_forwardDo neoclassical economists believe in Keynes law or Says law?arrow_forward
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