Prompt We have been discussing major macroeconomic concepts like the ADAS Model and Fiscal Policy. This is an opportunity to apply that knowledge to a real-world scenario. Choose one of the following scenarios and identify whether it is an example of a recessionary economy or inflationary economy. Next, analyze possible Neoclassical solutions for it. Then, analyze possible Keynesian solutions for it. What would the impact on the economy be in the short-run? Long-run? Scenario 1: An increase in the unemployment rate to 7.4% has occurred. Inflation has increased causing a decline in consumer spending. Exports have declined by more than $4 billion. This has caused a decrease in GDP by 3.7%. Scenario 2: An increase in consumer and government spending has occurred. This has increased GDP by 4.4%. Currently, inflation rate has increased to 1.6%. Unemployment has remained at 5.5%. Scenario 3: An increase in the stock market by 26.5% has occurred. Companies are stockpiling the earnings rather than investing them. Unemployment is at 7%, which has impacted consumer demand. GDP has declined by 0.29%. Scenario 4: Increased consumer demand has occurred for goods and assets, and thus, prices have increased rapidly. Inflation has hit 2.9%. The unemployment rate is 4.6%. GDP has increased by 1.9%.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter26: The Neoclassical Perspective

Section: Chapter Questions

Problem 19CTQ: Economists from all theoretical persuasions criticized the American Recovery and Reinvestment Act....

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Prompt

We have been discussing major macroeconomic concepts like the ADAS Model and Fiscal Policy. This is an opportunity to apply that knowledge to a real-world scenario.

Choose one of the following scenarios and identify whether it is an example of a recessionary economy or inflationary economy. Next, analyze possible Neoclassical solutions for it. Then, analyze possible Keynesian solutions for it. What would the impact on the economy be in the short-run? Long-run?

Scenario 1:

An increase in the unemployment rate to 7.4% has occurred. Inflation has increased causing a decline in consumer spending. Exports have declined by more than $4 billion. This has caused a decrease in GDP by 3.7%.

Scenario 2:

An increase in consumer and government spending has occurred. This has increased GDP by 4.4%. Currently, inflation rate has increased to 1.6%. Unemployment has remained at 5.5%.

Scenario 3:

An increase in the stock market by 26.5% has occurred. Companies are stockpiling the earnings rather than investing them. Unemployment is at 7%, which has impacted consumer demand. GDP has declined by 0.29%.

Scenario 4:

Increased consumer demand has occurred for goods and assets, and thus, prices have increased rapidly. Inflation has hit 2.9%. The unemployment rate is 4.6%. GDP has increased by 1.9%.

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