Answer the following based on chapters 12 and 13 of OpenStax.
| Question | Point Value |
| 1 | 50 |
| 2 | 50 |
| Total | 100 |
Question 1
Answer the following questions regarding the Keynesian perspective.
- From a Keynesian point of view, which is more likely to cause a recession: aggregate demand or aggregate supply, and why?
- Why do sticky wages and prices increase the impact of an economic downturn on unemployment and recession?
- Explain what economists mean by “menu costs”.
- What tradeoff is shown by a Phillips curve?
- What is the Keynesian prescription for recession? For inflation?
- How did the Keynesian perspective address the economic market failure of the Great Depression?
- 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.
- Does neoclassical economics view prices and wages as sticky or flexible? Why?
- What shape is the long-run aggregate supply curve? Why does it have this shape?
- What is the difference between rational expectations and adaptive expectations?
- If aggregate supply is vertical, what role does aggregate demand play in determining output? In determining the price level?
- If most people have rational expectations, how long will recessions last?
