How does the aggregate expenditures analysis differ from the aggregate demand–aggregate supply analysis?
What will be an ideal response?
The aggregate expenditures analysis assumes a constant price level. Output measures are in terms of real GDP and real income. The aggregate demand–aggregate supply model shows the relationship between real GDP and the price level. The Keynesian model ignores price level effects of increased aggregate expenditures. In contrast, the AD–AS model indicates that the price level will rise as aggregate demand rises in the intermediate or vertical ranges of aggregate supply.
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Starting from long-run equilibrium, a large decrease in government purchases will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; lower; potential B. expansionary; higher; potential C. recessionary; lower; potential D. recessionary; lower; lower
Airlines often engage in last-minute price cutting to fill remaining empty seats on a flight because this practice will generally
A) discourage rivals from matching price cuts. B) maximize marginal revenue. C) prevent rival airlines from competing in that market. D) increase marginal revenue more than marginal cost.
The supply-side effects of a reduction in taxes are the result of
a. increases in the disposable income of households accompanying reductions in tax rates. b. the stimulus effects of increases in government expenditures. c. increased attractiveness of productive activity relative to leisure and tax avoidance. d. reductions in interest rates that generally accompany expansionary fiscal policy.
The “invisible hand” cannot fully work when government economic polies are in place. Explain
Please provide the best answer for the statement.