Assignment
Question 1
Answer the following questions regarding the Keynesian perspective.
a) From a Keynesian point of view, which is more likely to cause a recession: aggregate demand or aggregate supply, and why?
b) Why do sticky wages and prices increase the impact of an economic downturn on unemployment and recession?
c) Explain what economists mean by "menu costs".
d) What tradeoff is shown by a Phillips curve?
e) What is the Keynesian prescription for recession? For inflation?
f) How did the Keynesian perspective address the economic market failure of the Great Depression?
g) Does it make sense that wages would be stickier downwards but not upwards? Why or why not?
Question 2
Answer the following questions regarding the Neoclassical perspective.
a) Does neoclassical economics view prices and wages as sticky or flexible? Why?
b) What shape is the long-run aggregate supply curve? Why does it have this shape?
c) What is the difference between rational expectations and adaptive expectations?
d) If aggregate supply is vertical, what role does aggregate demand play in determining output? In determining the price level?
e) If most people have rational expectations, how long will recessions last?