Chapter 26 Questions

The following are for your study review the following items and be prepared to give abrief explanation of each one: (Need not be included in the assignment.)

Says Law

The General Theory of employment, interest, and money

full employment GDP

potential GDP

Aggregate demand curve

Aggregate supply curve

Please list and answer the following questions:

Q1. Distinguish between neoclassical and Keynesian economists. (In some texts neoclassical is referred to as monetarist.)

Q2. What are the factors that make up the AD curve?

Q3. How do changes in private investment affect the AD curve?

Q4. What are two factors that cause the AS curve to shift?

Q5. What effect does a reduction in taxes have on the AD curve?

Q6. What effect does a reduction in taxes have on the AS curve?

Q7. Considering what you know about the current levels of nonfarm payroll and unemployment, in what area of the AD-AS curve is the U.S. economy? Explain why this is the case?

Q8. Suppose the economy is at full potential and the federal government institutes a policy of fiscal stimulus to the economy? What is the result in output? What is the result in the price level? (Remember in the short run we can produce beyond potential GDP, but in the long run, we will get a price level adjustment.)