In the Keynesian framework, which of the following events might cause a recession? Which might cause inflation? Sketch AD/AS diagrams to illustrate your answers.
- A large increase in the price of the homes people own.
- Rapid growth in the economy of a major trading partner.
- The development of a major new technology offers profitable opportunities for business.
- The interest rate rises.
- The good imported from a major trading partner become much less expensive.
In a Keynesian framework, using an AD/AS diagram, which of the following government policy choices offer a possible solution to recession? Which offer a possible solution to inflation?
- A tax increase on consumer income.
- A surge in military spending.
- A reduction in taxes for businesses that increase investment.
- A major increase in what the U.S. government spends on healthcare.
How would a decrease in energy prices affect the Phillips curve?
Does Keynesian economics require government to set controls on prices, wages, or interest rates?
List three practical problems with the Keynesian perspective.