Question 1

Explain the difference between the long run and short-run views of saving.

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Question 2

What is the paradox of thrift?

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Question 3

If an economist argues that equilibrium output differs from potential output,is that economist most likely a Keynesian or Classical economist?

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Question 4

What are the effects of an increase in aggregate demand (AD)in the short run and the long run? What is the effect of an increase in the short run aggregate supply (SAS)? What is the effect of an increase in Long run Aggregate Supply (LAS)?

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Question 5

Why might we expect the AD curve to be vertical?

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Question 6

Describe two ways in which the macro AS/AD model differs from the micro supply and demand model.

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Question 7

Explain why the long-run aggregate supply (LAS)curve is vertical.What determines the position of the LAS curve?

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Question 8

What is the difference,in terms of the time frame of analysis,between Classicals and Keynesians?

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Question 9

Explain why the aggregate demand curve is downward sloping.(As the price level falls,the quantity of real output demanded increases. ).List five factors that might cause the AD curve to shift outward.

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Question 10

What was the Classical economists' suggestion for ending unemployment during the Great Depression?

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Question 11

Why would the U.S.be concerned about economies in other parts of the world,particularly Japan,Western Europe,Canada,and Mexico,having recessions?

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Question 12

Keynes did not agree with the way the Classical economists described the workings of the economy.What was the essence of his thinking?

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Question 13

Give two examples of expectations that would tend to cause the aggregate demand curve to rise (shift out to the right).

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Question 14

Describe two distinct and opposing effects that a fall in interest rates (that are not caused by changes in the price level)could have on the AS/AD model.

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Question 15

The shape of the short-run aggregate supply (SAS)curve reflects two different types of microeconomic markets (auction markets and the posted price markets).How is the price level linked to the level of output in each market? List five factors that might cause an upward shift of the SAS curve.

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Question 16

If the price level had more flexibility,would recessions and depressions be less likely?

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Question 17

What does aggregate demand management mean?

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Question 18

Imagine you are the chief economist on the President's Council of Economic Advisers.The President has asked you to develop a policy that she can announce during her upcoming State of the Union Address.Your staff knows the President has a fondness for the SAS-AD model.Unfortunately,you can't you give her solid policy prescriptions based on that model because you do not know the location of the LAS curve.Explain why that is a serious problem.

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Question 19

According to Keynes there is a difference between equilibrium income and potential income.Explain this difference.

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Question 20

Canada is the largest trading partner of the U.S.Suppose the U.S.economy keeps growing.What will happen to the AD curve for Canada?

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Quiz 26: The Keynesian Short-Run Policy Model: Demand-Side Policies