Missed Lectures

Question 1

Keynes’ basic economic ideas involve the following 5:

Answer 1

• Economy won’t reach full employment without government help
• Depressions result from lack of demand for goods and services
• Consumers can’t demand without income from production
• Firms won’t increase production without demand
• Gov’t intervention is necessary

Question 2

Keynes developed the _____ model; aka _____

Answer 2

• Income-expenditure

* Keynesian cross

Question 3

The income-expenditure model _____…

Answer 3

• Doesn’t account for changes in prices; used to understand short run fluctuations
• Short-run fluctuations in demand aren’t met with changing prices so they lead to fluctuations in GDP and income

Question 4

Equilibrium output occurs when _____. It is the level of GDP where _____

Answer 4

• output meets the horizontal C + I line

* Planned expenditures = amount produced; or, y* = C+I

Question 5

Planned expentitures are _____

Answer 5

• total demand for goods / services when C is consumption demand, I is investment demand.

Question 6

The aggregate supply curve shows _____.

Answer 6

• the relationship between the level of prices and the quantity of output supplied.

Question 7

The long-run AS curve is _____. It shows the idea that in the long-run, output is _____.

Answer 7

• a vertical line

* determined solely by factors of production

Question 8

The short-run AS is _____. It shows how _____.

Answer 8

• a relatively flat line.

* In the short-run, prices are sticky and firms adjust production to meet demand.

Question 9

What are the three factors firms incur to produce?

Answer 9

• Input prices (wages and materials) lead to a shift upwards for short-run AS curve.
• Improvement in technology shifts curve down.
• Higher taxes or more regulations shift the curve up while industrial subsidies lead to shifts down.

Question 10

Supply shocks _____.

Answer 10

• are external events that shift the AS curve.

Question 11

Stagflation is _____.

Answer 11

• decrease in real output with increasing prices.

Question 12

In the short-run, the relationship between long-run and short-run AS _____.

Answer 12

• has the actual output-price level intersection (y_0) exceeding the potential y_p (long-run AS intersecting the aggregate demand) for booms and the opposite for negative shocks.