Consider an economy described by the Keynesian version of the AD-AS model with imperfect competition in a condition of full employment. To reduce the Pareto inefficiency, the government increases public transfers. What happens to the levels of output and prices in the short run? And in the long run?

Consider an economy described by the Keynesian version of the AD-AS model with imperfect competition in a condition of full employment. To reduce the Pareto inefficiency, the government increases public transfers. What happens to the levels of output and prices in the short run? And in the long run?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter26: The Neoclassical Perspective

Section: Chapter Questions

Problem 9RQ: A neoclassical economist and a Keynesian economist are studying the economy of Vineland. It appeals...

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A neoclassical economist and a Keynesian economist are studying the economy of Vineland. It appeals that Vineland is beginning to experience a mild recession with a decrease in aggregate demand. Which of these two economists would likely advocate that the government of Vineland take active measures to reverse this decline in aggregate demand? Why?
Use the graph to answer the question that follows. O Price level W X Y N LRAS W AD1 N At which point on the graph is the economy producing output in equilibrium at its maximum sustainable potential? SRAS AD2 AD3 Real GDP
conomic fluctuations II following graph shows the short-run aggregate supply curve (AS), the aggregate demand curve (AD), and the long-run aggregate supply curve RAS) for a hypothetical economy. Initially, the expected price level is equal to the actual price level, and the economy is in long-run equilibrium at natural level of output, $120 billion. ppose a bout of severe weather drives up agricultural costs, increases the costs of transporting goods and services, and increases the costs of oducing goods and services in this economy. me the graph to help you answer the questions about the short-run and long-run effects of the increase in production costs that follow. (Note: You all not be graded on any adjustments made to the graph.) int: For simplicity, ignore any possible impact of the severe weather on the natural level of output. PRICE LEVEL 140 135 130 125 115 110 100 100 105 110 LRAS 115 120 125 OUTPUT (Billions of dollars) AS AD 130 135 140 AD AS LRAS
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