Long-Run Keynesian Macroequilibrium

Question 1

keynesian economic theory

Answer 1

• up to a certain point (when the supply line curves and becomes vertical as it is in classical economic theory), if the aggregate demand shifts to the right, aggregate supply will increase, but average price levels will remain the same
• however, after the supply line curves up and becomes vertical (representing maximum efficiency), if the aggregate demand shifts to the right, prices will rise while real output remains constant

Question 2

third phase, when exports increase

Answer 2

APL increases

Question 3

inflationary gap occurs when you obtain no increase in output, but only an increase in APL from an increase in AD

Answer 3

third phase

Question 4

LRAS Curve is nearly vertical in the THIRD phase. what does this mean

Answer 4

• increase in RGDP results in a greater increase in APL
• nearly completely efficient
• economy is operating at full employment

Question 5

Fourth phase, when government spending increases

Answer 5

APL increase

Question 6

fifth phase, when imports increase and output does not move

Answer 6

rapid inflation

Question 7

third phase shows economy at full employment

Answer 7

factors of production are being used

Question 8

second phase, begins to slope upward

Answer 8

economy becoming more efficient

Question 9

second phase

Answer 9

• APL increases

- increase in real GDP causes a lesser increase in the APL