Chapter 36: Problems and Applications
A. The chapter suggests that the economy, like the human body, has Natural restorative powers. Please expand upon that concept.
B. Illustrate the short-run effect of a fall in aggregate demand using an aggregate demand/aggregate supply diagram. What happens to total output, income, and employment?
C. If the government does not use a stabilization policy, what happens to the economy over time? Illustrate this adjustment on your diagram. Does it generally occur in a matter of months or a matter of years?
D. Do you think the natural restorative powers of the economy mean that policymakers should be passive in response to the business cycle?
Leave a Reply