Question

True or False

1.Government spending can raise Aggregate Demand and real GDP in the Keynesian model.

2.Keynesians believe that monetary policy is very powerful at moving real GDP.

3/The Keynesians felt that the Great Depression was caused by inadequate demand partly coming from the stock market crash and partly from a lack of income growth for most people.

4.Contractionary gaps are more common than expansionary ones in the Keynesian model.

Answer 1

1) True because Keynesians believe that the long run is very long time period so that economy always operates at short run level were real GDP can be increased by government's action

2) False. There is a doubt about the effectiveness of monetary expansion especially when there is a low interest rate in the market and a liquidity trap condition

3) True. The reasl reason was deficient demand due to lack of wealth and income

4) True. This is because the output at the long run aggregate supply is seldom achieved by the model economy. Hence there are mostly recessionary gaps.