Asked by Savannah Calkins on Jul 17, 2024
Verified
In the Keynesian model,in a depression
A) the economy operates in the horizontal range of the AS curve.
B) prices and wages are flexible.
C) the interest rate adjusts until desired saving equals desired investment.
D) All of the choices are true.
Keynesian Model
An economic theory stating that government intervention through fiscal policies is necessary to moderate the boom and bust cycles of an economy.
Horizontal Range
In the context of data visualization or statistical analysis, it refers to the span or extent of values along the horizontal axis, typically representing time or categories.
AS Curve
The Aggregate Supply curve, depicting the total amount of goods and services that producers in an economy are willing to sell at different price levels.
- Understand the assorted stretches of the aggregate supply curve and their impact on policy-making in the economic sphere.
- Understand the criteria for achieving macroeconomic equilibrium and examine the importance of government action according to Keynes.
Verified Answer
ZP
ZIARA PEEBLESJul 23, 2024
Final Answer :
A
Explanation :
In the Keynesian model, a depression is characterized by a situation where the economy operates in the horizontal range of the aggregate supply (AS) curve. This means that as demand decreases, output and employment decrease but prices and wages remain sticky, which creates a situation of excess supply in the goods and labor market. Therefore, the only way to increase output and employment is through expansionary fiscal policy, such as increasing government spending or decreasing taxes. The interest rate does not play a significant role in this model because it is assumed to be already near zero.
Learning Objectives
- Understand the assorted stretches of the aggregate supply curve and their impact on policy-making in the economic sphere.
- Understand the criteria for achieving macroeconomic equilibrium and examine the importance of government action according to Keynes.