Principles of Economics

Steven A. Greenlaw, David Shapiro

Chapter 25

The Keynesian Perspective - all with Video Answers

Educators

Chapter Questions

Problem 1

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. A large increase in the price of the homes people own.
b. Rapid growth in the economy of a major trading partner.
c. The development of a major new technology offers profitable opportunities for business.
d. The interest rate rises.
e. The good imported from a major trading partner become much less expensive.

Crystal Wang

Crystal Wang

Numerade Educator

Problem 2

In a Keynesian framework, using an AD/AS diagram, which of the following government policy choices offer a possible solution to recession? Which offer a possible solution to inflation?
a. A tax increase on consumer income.
b. A surge in military spending.
c. A reduction in taxes for businesses that increase investment.
d. A major increase in what the U.S. government spends on healthcare.

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 3

Use the AD/AS model to explain how an inflationary gap occurs, beginning from the initial equilibrium in Figure 25.6.

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 4

Suppose the U.S. Congress cuts federal government spending in order to balance the Federal budget. Use the AD/AS model to analyze the likely impact on output and employment. Hint: revisit Figure $25.6 .$

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 5

How would a decrease in energy prices affect the Phillips curve?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 6

Does Keynesian economics require government to set controls on prices, wages, or interest rates?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 7

List three practical problems with the Keynesian perspective.

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 8

Name some economic events not related to government policy that could cause aggregate demand to shift.

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 9

Name some government policies that could cause aggregate demand to shift.

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 10

From a Keynesian point of view, which is more likely to cause a recession: aggregate demand or aggregate supply, and why?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 11

Why do sticky wages and prices increase the impact of an economic downturn on unemployment and recession?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 12

Explain what economists mean by "menu costs."

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 13

What tradeoff does a Phillips curve show?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 14

Would you expect to see long-run data trace out a stable downward-sloping Phillips curve?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 15

What is the Keynesian prescription for recession? For inflation?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 16

How did the Keynesian perspective address the economic market failure of the Great Depression?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 17

In its recent report, The Conference Board's Global Economic Outlook 2015, updated November 2014 (http://www.conference-board.org/data/ globaloutlook.cfm), projects China's growth between 2015 and 2019 to be about $5.5 \% .$ International Business Times (http://www.ibtimes.com/us-exports-china-have-grown-294-over-past-decade-1338693) reports that China is the United States' third largest export market, with exports to China growing $294 \%$ over the last ten years. Explain what impact China has on the U.S. economy.

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 18

What may happen if growth in China continues or contracts?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 19

Does it make sense that wages would be sticky downwards but not upwards? Why or why not?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 20

Suppose the economy is operating at potential GDP when it experiences an increase in export demand. How might the economy increase production of exports to meet this demand, given that the economy is already at full employment?

Oluwadamilola Ameobi

Oluwadamilola Ameobi

Numerade Educator

Problem 21

Do you think the Phillips curve is a useful tool for analyzing the economy today? Why or why not?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 22

Return to the table from the Economic Report of the President in the earlier Work It Out feature titled "The Phillips Curve for the United States." How would you expect government spending to have changed over the last six years?

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 23

Explain what types of policies the federal government may have implemented to restore aggregate demand and the potential obstacles policymakers may have encountered.

Oluwadamilola Ameobi

Oluwadamilola Ameobi

Numerade Educator