Question

Normally, when the economy contracts, costs also decrease for firms and can return AS back to equilibrium. But what do Keynesians say?

a	With Flexible Prices, prices fall due to lower sales and incomes, and the economy returns to equilibrium.
b	The workers must overthrow the capitalist government.
c	With Flexible Prices, prices remain high despite low GDP and the economy gets stuck in this condition.
d	Keynesians would agree.
e	With Sticky Wages, prices remain high despite low GDP and the economy gets stuck in this condition.

Question 9 (1 point)

What solution do Keynesian economists give during a recessionary gap with sticky wages?

a	The economy needs gov't intervention e.g., gov't projects to get money into the hands of consumers, or to get the factories running again.
b	The economy is self-correcting as the reduced incomes will translate into lowered prices for everyone, including firms and consumers, and GDP will start growing.
c	The gov't needs to raise interest rates.
d	Thoughts and prayers

Question 10 (1 point)

What solution do Neo-Classical economists give during a recessionary gap?

a	The economy is self-correcting as the reduced incomes will translate into lowered prices for everyone, including firms and consumers, and GDP will start growing.
b	Thoughts and prayers
c	The gov't needs to raise interest rates.
d	The economy needs gov't intervention e.g., gov't projects to get money into the hands of consumers, or to get the factories running again.

Answer 1

8) Keynesian theory argues that because of sticky wages worker would hate wage cut and the prices will remains high hence option e is correct

9)During recessionary gap even though prices remain high due to stick wages bu the firm will start producing less in account of high input cost(wages) and government should pump more money so as to get the engine running Hence option a is correct

10)​​​​​​​​​ Neoclassical economist believe economy is self adjusting and will bring back to normal as wages and prices are flexible which is contrary to Keynesian during recessionary gap which ask for government intervention hence option a is correct