Chapter 24: Q. 58 (page 603)
Are Say’s law and Keynes’ law necessarily mutually exclusive?
Short Answer
Say's law and Keynesian law aren't mutually exclusive, but they apply to distinct periods of time.
Chapter 24: Q. 58 (page 603)
Are Say’s law and Keynes’ law necessarily mutually exclusive?
Say's law and Keynesian law aren't mutually exclusive, but they apply to distinct periods of time.
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Get started for freeThe AD/AS model is static. It shows a snapshot of the economy at a given point in time. Both economic growth and inflation are dynamic phenomena. Suppose economic growth is 3% per year and aggregate demand is growing at the same rate. What does the AD/AS model say the inflation rate should be?
Name some factors that could cause the SRAS curve to shift, and say whether they would shift SRAS to the right or to the left.
If households decide to save a larger portion of their income, what effect would this have on the output, employment, and price level in the short run? What about the long run?
How is recession illustrated in an AD/AS model?
Review the problem in the Work It Out titled
"Interpreting the AD/AS Model." Like the information provided in that feature, Table shows information on aggregate supply, aggregate demand, and the price
level for the imaginary country of Xurbia.
a. Plot the AD/AS diagram from the data. Identify
the equilibrium.
b. Imagine that, as a result of a government tax
cut, aggregate demand becomes higher by at
every price level. Identify the new equilibrium.
c. How will the new equilibrium alter output? How
will it alter the price level? What do you think
will happen to employment?
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