Inflationary gap and a recessionary gap

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1. The classical economists believed that our economy was always at full employment or tending toward full employment. If our economy were operating below full employment, what would happen, according to the classicals, to move the economy back toward full employment?

2. When the price level increases, the quantity of goods and services purchased declines. Why does this happen?

3. Explain the difference between the long-run aggregate supply curve and the short-run aggregate supply curve.

4. What were the major areas of disagreement between John Maynard Keynes and the classical economists?

5. Describe the chain reaction that is set off when (a) aggregate demand exceeds aggregate supply; (b) aggregate supply exceeds aggregate demand.

6. If you lived in a village cut off from the rest of the world, show how Say's law would apply to your village's economy.

7. Describe the differences between an inflationary gap and a recessionary gap.

8. Explain why large deficits are so bad.

Reference no: EM132079268

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