Chapter 12 The Keynesian Perspective

Consumption, investment, government spending, exports, and imports are:

all components of aggregate demand.

According to the _____________________ argument, a market-oriented economy has no obvious way to implement a plan of systematic wage reductions.

coordination

If markets throughout the global economy all have flexible and continually adjusting prices, then:

each economy will always head for its natural rate of unemployment

Refer to the graph shown below. At point B:

economic growth is low or even negative

According to the Keynesian framework, ________________________ may cause a recession, but not inflation.

a major trading partner's economic slowdown

Aggregate demand is more likely to _________________ than aggregate supply in the short run.

shift substantially

Which of the following is a distinguishing characteristic of a Keynesian cross diagram?

45- degree line

____________________ will not cause a shift of the AS curve in a Keynesian framework.

Changes in output prices

According to macroeconomic theory, evidence that high unemployment may be accompanied by low inflation, and low unemployment may be accompanied by high inflation is supported by the:

Keynesian Phillips curve tradeoff

Refer to the graph shown below. This graph illustrates a:

Phillips Curve.

In macroeconomics, a _________________ is used to show the relationship between output and the input price level.

Phillips curve

According to the Keynesian framework, which of the following may help a country reduce inflation, but will not help that country to get out of a recession?

a decrease in the tax rate on consumer income

According to the Keynesian framework, ________________ in __________________ may cause inflation, but not a recession.

an increase; domestic investment

Which of the following will cause the multiplier to be smaller and cause changes in investor confidence to have a smaller effect in an economy?

bigger leakages

According to the Keynesian framework, ____________________________ will not help reduce inflation, but may help a country get out of a recession.

increased spending by the government on health care

In macroeconomics, what name is given to the costs of changing prices that businesses must consider?

menu costs

The sum of all the income received for contributing resources to GDP is called ___________________.

national income (Y)

Keynesian economics focuses on explaining why recessions and depressions occur, as well as offering a ______________________ for minimizing their effects.

policy prescription

The Keynesian economic framework is based on an assumption that:

prices and wages are sticky and do not adjust rapidly.

In a Keynesian cross diagram, what name is given to the distance between an output level that is below potential GDP and the level of potential GDP?

recessionary gap