UB HIS 161 - Chapter 7 (3 pages)

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Chapter 7



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Chapter 7

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Pages:
3
School:
University at Buffalo-SUNY
Course:
His 161 - U S History 1
U S History 1 Documents

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Chapter 7 Classical and Keynesian Macro Analyses 1 The classical model assumes a prices and wages are constant b pure competition c people suffer from money illusion d altruism is the main motivating force 2 In the classical model saving a is an injection into the income stream b and investment are determined by national disposable income c causes unemployment d is a leakage from the circular flow 3 In the classical model when households save a that money becomes a part of the supply of saving curve b business investment offsets such saving c full employment will still prevail d All of the above T F 4 In the classical model a decrease in consumption will be offset by an increase in Investment spending so that RGDP will not change 5 Saving represents a n curve Investment represents a n curve In the classical model desired household saving and desired business investment are equated by the rate If Consumption falls then Savings The supply of credit which causes the interest rate to which causes Investment to until Y In addition future GDP will be 6 In the classical model the LRAS curve is horizontal vertical Therefore changes in the AD curve lead to changes in but since wages change it does not lead to changes in 7 If much unused capacity and massive unemployment exist the economy will be operating in the range of the SRAS curve In this range prices and wage rates are fixed flexible Hence increases in aggregate demand will lead to increases in but no changes in the In that range real GDP is said to be determined 8 For the most part The short run aggregate supply curve is sloped This is because changes in production costs changes in the price level profitability and producers will have an incentive to produce more less as the price level rises 9 At very high price levels the SRAS curve becomes very flat steep because it becomes more difficult easier to get more labor at relatively fixed wage rates 10 If wage rates fall the short run AS curve will shift to the while LRAS is If technological improvements occur and if the prices of raw materials fall permanently the long run AS curve and SRAS will shift to the 11 Assuming the economy is operating at equilibrium predict what happens to the equilibrium price level and equilibrium real GDP as a result of a an increase in the labor participation rates SR RGDP GDP PL Unemployment point LR RGDP PL Unemployment point b a temporary rise in raw material prices SR RGDP GDP PL Unemployment point This is called LR RGDP PL Unemployment point c a decrease in government spending SR RGDP GDP PL Unemployment point LR RGDP PL Unemployment point d a rise in Consumption spending due to stock market boom SR RGDP GDP PL Unemployment point LR RGDP PL Unemployment point 14 T F A demand shock that s hifts the AD curve rightward



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