Chapter 24: Q 18. (page 601)
Do neoclassical economists believe in Keynes’ law or Say’s law?
Short Answer
They believe in say's law.
Chapter 24: Q 18. (page 601)
Do neoclassical economists believe in Keynes’ law or Say’s law?
They believe in say's law.
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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?
How is pressure for inflationary price increases shown in an AD/AS model?
The imaginary country of Harris Island has the
aggregate supply and aggregate demand curves as Table shows.
a. Plot the AD/AS diagram. Identify the equilibrium.
b. Would you expect unemployment in this economy to be relatively high or low?
c. Would you expect concern about inflation in this
economy to be relatively high or low?
d. Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by at every price level.
Identify the new aggregate equilibrium.
e. How will the shift in AD affect the original
output, price level, and employment?
In your view, is the economy currently operating in the Keynesian, intermediate or neoclassical portion of the economy’s aggregate supply curve?
Why would an economist choose either the neoclassical perspective or the Keynesian perspective, but not both?
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