Macro 3.3- Long- Run Aggregate Supply

Mr. Clifford from ACDCecon explains aggregate demand and supply, focusing on inflationary and recessionary gaps. He discusses how wage adjustments affect aggregate supply in the long run. The video contrasts classical and Keynesian economic theories, highlighting their approaches to handling economic gaps and market interventions.

What happens to aggregate supply when wages increase due to an inflationary gap?

• It remains unchanged.

• It shifts to the right.

• It increases exponentially.

• It shifts to the left.

In a recessionary gap, what is the expected behavior of wages and resource prices if they are flexible?

• They decrease, causing aggregate supply to increase.

• They fluctuate unpredictably, causing economic instability.

• They increase, causing aggregate supply to decrease.

• They remain constant, maintaining the current aggregate supply.

What is a key difference between classical and Keynesian economists regarding economic intervention?

• Classical economists advocate for immediate government intervention.

• Keynesian economists believe in letting markets self-correct.

• Classical economists prefer market self-regulation, while Keynesians support government intervention.

• Both schools of thought agree on the need for government intervention.

According to Keynesian economics, why should we not wait for wages to fall during a recession?

• Because it results in a decrease in aggregate demand.

• Because people are unemployed and need immediate relief.

• Because it causes a surplus in the economy.

• Because it leads to higher inflation.

What is the classical economic view on government deficit spending during economic downturns?

• It should be increased to stimulate demand.

• It is irrelevant to economic recovery.

• It should be avoided to let markets adjust naturally.

• It is necessary to boost the economy.