Describe the effects, according to both views (Classical and Keynesian), of an increase in the money supply. Explain what happens to real output and the price level. Use the AD-AS model diagram to discuss the effects.
The classical economic model has the following features-
The Keynesian economic model has the following features-
Effect of classical Model –
Classical AS curve is vertical at the full employment level and does not intend to change from that level. It says that the economy will operate on this level only, may it have different price levels. Thus, the equilibrium stands at full employment level of the economy. Prices may move up or down but the production will remain the same.
According to this model, the economy will remain stable or move back to stability automatically if there’s any downturn of the economy in future.
The aggregate demand curve stays the downward sloping curve.
Effect of Keynesian Model –
The model got introduced immediately after the great depression. According to the model, the economy is not at full employment level. The unemployment was very high and the people were losing jobs at a greater number because of aftereffects of the recession. The prices are flexible and the output is also adjustable according to Keynes. The aggregate demand curve and aggregate supply curve are as follows-
Describe the effects, according to both views (Classical and Keynesian), of an increase in the money...
Describe the effects, according to both views (Classical and Keynesian), of an increase in the money supply. Explain what happens to real output and the price level. Use the AD-AS model diagram to discuss the effects.
a. Describe the short-run determination of equilibrium real GDP and the price level in the classical model. b. Discuss the essential features of Keynesian economics and explain the short-term aggregate supply curve.
keynesian effect of increase in money supply on level of real income, price level, money wage and interest (with diagram)
According to the classical model, an increase in the money supply causes a. output to increase in the long run. b. the unemployment rate to fall in the long run. c. prices to rise in the long run. d. interest rates to fall in the long run.
1. Within the classical framework, explain the effects of a decline in expected profitability on investment. 2. If the government decides to tighten spending by buying bonds, what are the implications for aggregate demand in the classical case? How does this differ if the government chooses to reduce spending by controlling the printing of money? 3. Within the classical model, analyze the effects of an increase in (a) lump-sum taxes; (b) marginal income tax rate. Consider effects on real output,...
Question 4 Discuss the following statements: (a) According to the IS-LM model how would an increase of government spending affect equilibrium interest rates and income in a short-run closed macroeconomy. (b) According to the Classical Model of the aggregate economy, changes in aggregate demand have no effect on the amount of output produced, only the average pricelevel may be affected. (c) Crowding out through interest rates occurs when expansionary fiscal pol-icy causes interest rates to fall. (d) The relative bargaining...
1 Like the new classical model, the new Keynesian model distinguishes between the effects from anticipated and unanticipated policy: Anticipated policy has a ……… ..effect on aggregate output than unanticipated policy. However, anticipated policy does matter to …………… fluctuations. Please choose one: a. Smaller - price b. Larger - output c. Larger - price D. Smaller - output 2.A rise in the money supply raises equilibrium output, but lowers the equilibrium interest rate. Select one of them: Right False 3. The new...
2. Describe the Keynesian transmission mechanism for a decrease in the money supply. Assuming that no liquidity trap exists, that investment is interest-sensitive, and that the economy is in the horizontal portion of the AS curve, what happens to Real GDP and the price level? How can you tell if this is a direct transmission mechanism or an indirect one?
INTERMEDIATE MACRO: PLEASE SUBMIT ALL ANSWERS WITH WORKING Problem Set 3 Topic: Keynesianism 1. What is price stickiness? Why do Keynesians believe that allowing for price stickiness in macro analysis is important? 2. Describe four alternative responses available to policymakers when the economy is in recession. What are the advantages and disadvantages of each strategy? Please discuss the effects on employment, the price level, and the composition of output. What are some of the practical difficulties in using these stabilization...
2. The money supply (Ml) increased from $1,604 billion in December 2008 to $3,342 billion in December 2016. According to the basic classical model supplemented by the Quantity Theory of Money, what would be the effects of the increase in the money supply on: a. Output and the price level? b. The quantity of labor, the real wage, and the nominal wage? c. National saving, investment, and the real interest rate?