Question

6. A wealthy economy that has already reached its steady state might continue to enjoy sustained economic growth if a. It continues to increase its money supply b. There are continuing technological advances c. Its savings rate is high d. It utilizes protectionist trade policies

7. Which policy statement might a Keynesian economist make?

a. The government should stay out of the economy b. The government should focus on aggregate supply, not on aggregate demand c. The government should encourage savings, not spending d. The government should use spending to promote full employment

8. A country can achieve a more rapid rate of economic growth if its citizens are prepared to a. Pay more taxes b. Spend more on goods and services c. Sacrifice some present consumption d. Redistribute income to the poor

9. According to the basic Solow model, poorer developing countries

a. Will never be as wealthy as developed countries b. Will always grow more slowly than developed countries c. Will eventually be as wealthy as developed countries d. Will never converge to a steady state

10. If the Fed sets the interest rate higher than the market level, we would expect to see

a. An increase in the GDP b. An increase in the unemployment rate c. An increase in the rate of inflation d. An increase in the price level

Answer 1

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Question:

Answer:

6). Answer:

b. There are continuing technological advances.

A wealthy economy that has already reached its steady state might continue to enjoy sustained economic growth if there are continuing technological advances because at this level the economy is producing at full potential level. In long run aggregate supply is vertical so, if government increase money supply then it will only push the inflation level. other side more saving rate will not boost the economy because at this level there in no scope for further growth. . If it utilizes protectionist trade policies then it will harm to the economy negatively.

7). Answer:

d. The government should use spending to promote full employment.

Keynesian economist think opposite to the classical economist. Classical economist is in favor of zero government's intervention free economy and say market forces will adjust itself automatically. But  Keynesian economist are in favor of government's intervention in the economy. Keynesian economist say that during the recession the government should use spending to promote full employment government spending will increase the aggregate demand. Increasing aggregate demand will increased the total output/GDP and price level. They said recession is a cause of decreasing or low level of aggregate demand.

8). Answer:

d. Redistribute income to the poor.

Redistribution means taking income from those with higher incomes and providing income to those with lower incomes. Its increases the standard of living of the backward section of the society. It will increase the income level that increase the consumption and saving level that boost the aggregate demand and aggregate supply that increase the GDP, price level, production, employment level and income level further.

9). Answer:

c. Will eventually be as wealthy as developed countries.

Solow model is a popular macroeconomic model that analyzes changes in the level of output in an economy as a result of changes in the population growth rate, the savings rate, and the rate of technological progress. According to this model poorer developing countries will eventually be as wealthy as developed countries if capital is freely move internationally.

10). Answer:

b. An increase in the unemployment rate.

If the Fed sets the interest rate higher than the market level then money became more costlier so it will reduced the demand for money. Decreasing demand for money will negatively affect the consumption and investment level. Decreasing consumption and investment will reduce aggregate demand and aggregate supply. Decreasing AD and AS will reduced the GDP, price level, production level. Decreasing production level and GDP growth will decrease the employment and income level and unemployment rate will increased.

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