From a Keynesian point of view, which is more likely to cause a recession: aggregate demand...
From a Keynesian point of view, which is more likely to cause a recession: aggregate demand or aggregate supply, and why? In your answer explain the difference between Keynes law and Say’s law.
Homework Answers
Aggregate supply is considered to be a horizontal or fixed at a given price in the short run under keynesian view. this is because it is proposed that sellers are able to supply whatever quantity is demanded by the economy at at the given price in the short run. There is no long run in keynesian theory and this is the reason why only aggregate demand when shifting to left brings recession.
This also indicates that Keynes believed in in the power of demand and therefore the proposed Keynes law makes the aggregate demand responsible for bringing recession and expansion so that demand creates its own supply. However Say's law is based on the power of aggregate supply which indicates that supply creates its own demand.
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a. Which of the following events would likely cause the decrease
in aggregate demand?
Personal consumption falls as workers become concerned about
future employment prospects.
Imports decrease due to increased foreign prices.
Gross investment increases as capital units become fully
utilized.
b. A decrease in aggregate demand is of policy concern due to
the increase in the:
unemployment rate.
productivity of workers.
price level.
c. Which policy action should the federal government enact?
Increase personal income tax rates
Decrease real...
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