Exam 20: A: Appendix: Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

Exhibit 20A-2 Macro AD/AS Models -In Panel (b)of Exhibit 20A-2,a Keynesian expansionary stabilization policy designed to move the economy from Y₁ to Yp would attempt to shift the:

Exhibit 20A-3 Macro AD/AS Model -As shown in Exhibit 20A-3,assume the marginal propensity to consume MPC equals 0.80.Using discretionary fiscal policy,federal government spending should be ____ in order to restore the economy from E₁ to full employment.

-In Panel (b)of Exhibit 20A-1,the economy is initially in short-run equilibrium at real GDP level Y₁ and price level P₂.If the federal government decides to intervene,it would most likely:

Assuming the economy is experiencing a recessionary gap,classical economists predict that:

Assuming the economy is in a recession,Keynesian economists predict that:

A policy to do nothing and allow the economy to self-correct or adjust without interference from the federal government is also called a(n)____ policy:

If the economy is experiencing an inflationary gap,Keynesian economists advocate allowing flexible wages to shift the short-run aggregate supply curve (SRAC)upward and restore full employment.

Exhibit 20A-2 Macro AD/AS Models -In Panel (b)of Exhibit 20A-2,the economy is initially in short-run equilibrium at real GDP level Y₁ and price level P₂.Classical theory argues that:

If the economy is not operating at full-employment real GDP,classical economists prescribe a government policy of nonintervention.

Exhibit 20A-4 Macro AD/AS Model -As shown in Exhibit 20A-4,assume the marginal propensity to consume MPC equals 0.75.Using discretionary fiscal policy,federal government spending should be ____ in order to restore the economy from E₁ to full employment.

Exhibit 20A-2 Macro AD/AS Models -In Panel (a)of Exhibit 20A-2,an expansionary Keynesian government stabilization policy designed to move the economy from Y₁ to Yp would shift the:

Exhibit 20A-2 Macro AD/AS Models -In Panel (b)of Exhibit 20A-2,the economy is initially in short-run equilibrium at real GDP level Y₁ and price level P₂.If the federal government or Fed decides to intervene,it would most likely:

Assume the economy is experiencing a recessionary gap.Keynesian economists would support which of the following policies:

Exhibit 20A-4 Macro AD/AS Model -As shown in Exhibit 20A-4,assume the marginal propensity to consume MPC equals 0.80.Using discretionary fiscal policy,federal government spending should be ____ in order to restore the economy from E₁ to full employment.

Assume the economy is operating at a real GDP above full-employment real GDP.Keynesian economists would prescribe which of the following policies?

Exhibit 20A-2 Macro AD/AS Models -As shown in Panel (b)of Exhibit 20A-2,assume the economy adopts a classical nonintervention policy.Which of the following would cause the economy to self-correct?

If the economy is experiencing an inflationary gap,classical economists argue that the Federal Reserve should lower interest rates.

Assuming an inflationary gap exists,classical economists believe that flexible wages will restore full employment.

Assume the economy is experiencing an inflationary gap,classical economists believe that:

Assuming the economy is in a recession,Keynesian economists predict that lower wages will shift the short-run aggregate supply curve rightward.