Question

Which model is known to do a good job explaining long-term economic growth?

Keynesian

supply-side

A key distinction between the Keynesian and neoclassical economists is that Keynesians believe the economy exhibits a ________ aggregate supply curve and neoclassicals believe it is ________.

upward-sloping; downward-sloping

flat; vertical

vertical; flat

In the Keynesian zone of the aggregate supply curve, how is Keynes’ law, where demand creates its own supply, illustrated?

Prices change relatively little with an increasing aggregate demand, but that changing demand does effectively increase aggregate outputs because of the excess capacity in the economy.

Because the economy is closer to full output, aggregate demand either increasing or decreasing has a large effect on prices and little effect on aggregate supply.

Prices remain relatively static and outputs remain unchanged when aggregate demand decreases because the economy lacks excess capacity.

A weakness of the Keynesian economic view is that it:

can overlook the long-term causes of economic growth like the existing natural rate of unemployment even when the economy is at potential GDP.

focuses on the long-term factors for economic growth and not the short-term causes of economic growth such as why unemployment fluctuates up and down over a few years.

can overlook the short-term causes of economic growth or decline when the economy is stuck in a long-lasting recession.

neoclassical

Answer 1

Q1) option B)

Supply side Economics aim at explaining the Economic growth in long run better , where as Keynesian economics focus on short term economic growth factors

2) option B)

In Keynesian economics, SRAS is flat , bcoz full employment is not assumed, there is spare capacity in Production, so at the given price, any amount can be produced

Where as , in neoclassical , it is assumed that full employement level is achieved, so AS is vertical

3) option A)

In the Keynesian zone of SRAS, it's nearly flat, & full employment is not attained, firms have excess Production capacity, so as AD rises, more is Produced & supplied, with little rise in prices

4) option A)

Keynesian economics doesn't focus on long term growth factors , so b is false

Thus its focus on short run factors of growth & so overlooks the long term factors