Problem 1: Explain the fundamental differences in the "Keynesian" view of the economy versus the "Classical" view. Which view would support a costly stimulus package even when the debt is large? Fully explain your answers.

Problem 2: What economic conditions would justify the use of “supply-side” stimulus policy? What makes supply-side stimulus policy attractive to many? What makes supply-side stimulus policy so controversial?

Problem 3: What is the likely effect on aggregate supply if the government decreases corporate income taxes? (ceteris paribus) How does this AS shift effect output, employment, and prices?

Problem 4: What are the potential macroeconomic problems caused by large deficits and a large national debt? What economic conditions might justify deficit spending and increasing the debt?

Problem 5: Would a millionaire and a poor person normally have the same MPC? Explain thoroughly.

Problem 6: Assume a government stimulus package is implemented for 2020 and the stimulus provides $500B in checks to households. Assuming an MPC of .95 compute the estimated “cumulative change in spending” that will likely result from this stimulus package.

Answer rating: 100% (QA)

Problem 1 The basic difference between the Keynesian View and Classical View is the intervention of government Keynesian claims that there must in the intervention of the government for a stable econo... View the full answer