Figure 2: Keynes\'s AD-AS Model The Keynesian AS curve Price AS Up to real outpu
ID: 1142648 • Letter: F
Question
Figure 2: Keynes's AD-AS Model The Keynesian AS curve Price AS Up to real output level T ncreanes in AD have no effect on the price level. lncreases n AD beyond Yf cause an increase in the price level but no increase in real output Pt AD2 AD ADI National income treal GOP) 2.1 . Changes in which factors could cause aggregate demand to shift from AD to ADI? What could happen to the unemployment rate? What could happen to the inflation rate? 2.2. The Keynesian AD-AS model describes what happens with price levels when aggregate demand increases. Could you find any evidence from the last ten-fifteen years that might support AD-AS model descriptions of demand-pull inflation, cost-push inflation, and recession? For example, you could find data on the GDP's of any two countries from 2000 to 2017 to support your findings. 2.3. In macroeconomics, the immediate short run is known as a length of time when both input prices and output prices are fixed. In the short-run, input prices are fixed but output prices are variable. In the long run, input prices and output prices can vary What happens in the immediate short-run when AD falls from AD to AD2 to the price level and output? What happens in the short-run when AD falls from AD to AD2 to the price level and output? What will happen in the long-run?Explanation / Answer
2.1 Shift from AD to AD1 shows recessionary impact it may come due to any of the following reasons:
a. Decrease in consumer confidence
b. Increase in interest rates
c.Decrease in wealth
d. Increase in taxes and decrease in business confidence
e. Change in poltical priorities.
Keynesian economists mainly argue that not only wages but also product prices do not fall easily, even if an economy is in a recessionary cycle. The reason is that if wages will not go down, firms will not be lowering their prices because that may reduce companies overall profits. Oligoply firms may fear of price wars. if one fi rm lowers its price where all the firms will be in loss. Hence price levels may not go down even in recession.hence unemployment may occur at stable prices.
2.2) Indian economy after demonetisation in 2016 went through recessionary cycle, however price levels had gone down showing reduced wages. Unemployment increased during this time and GDP Went down by 1.5% to 2 %Japanese economy is constantly having recessionary impact however, price levels are going down. Unemployment is at steady levels.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.