- (10 points) Based on the graph, what type of gap is the U.S. economy experiencing?
- (40 points) From the Keynesian View—
a. Is the issue on the demand or supply side of the economy? What change needs to happen in our graph to bring the U.S. economy back to potential output?
b. What government actions would be recommended?
c. According to the Phillips curve, what would happen to the price level if we pursue policies to lower unemployment?
d. What did Keynes mean by “sticky prices”? - (30 points) From the Neoclassical View—
a. What change needs to happen in our graph to bring the U.S. economy back to potential output?
b. How will this happen?
c. Would this lead to more or less inflation that the Keynesian actions? - (10 points) From 2007-2009 the US experienced one of its worst economic collapses. Which approach did the U.S. government follow in regards to the economy—Keynesian or Neoclassical? Explain.
- (10 points) In Spring 2020, the U.S. economy once again found itself in an economic crisis, this time due to the COVID-19 pandemic. Which approach did the U.S. government follow in regards to the economy—Keynesian or Neoclassical? Explain.
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