Macroeconomics
Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 10, Problem 19QP
To determine

Impact of increase in the AD below the natural real GDP on the price level under simple Keynesian economics theory.

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Now think about a major recession, like the one that occurred in 1982. (Hint: a major recession could be caused by a large shift to the left in the AD curve.) Why would a Keynesian policy make more sense in response to a major recession like the one that occurred in 1982? What would be the cost of following a neoclassical policy then?
Figure 2: Keynes’s AD-AS Model Economics Online. (n.d.). Aggregate supply. Retrieved from http://www.economicsonline.co.uk/Managing_the_economy/Aggregate+supply.html   2.1. In Figure 2 above, what are the factors that may cause the aggregate demand to shift from AD to AD1? What is the difference between demand pull inflation, cost push inflation and recession?
What is the difference between the Keynesian zone, neoclassical zone, and intermediate zone in the AD/AS model? For each, predict the impact that an increase in aggregate demand would have on the price level relative to real GDP in each of those zones. How does the AD/AS model explain economic growth, recessions, as well as changes in unemployment and inflationary pressures?
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