Macro Unit 3, Question 10- Recessionary Gap and Classical Economists

The video discusses the concept of a recessionary gap, where real output is below full employment levels, leading to high unemployment. It presents two main economic schools of thought: Keynesian, which advocates for government intervention through fiscal or monetary policy, and classical, which trusts market forces to self-correct. The video explains how flexible wages and prices can help restore equilibrium. It concludes by suggesting further exploration of economic theories through resources like the Keynes vs Hayek rap videos.

What is a recessionary gap characterized by?

• Real output above full employment GDP

• A surplus in government budget

• Real output below full employment GDP

• Unemployment rates between 4-6%

Which economic theory advocates for government intervention to address recessionary gaps?

• Supply-side economics

• Monetarist economics

• Keynesian economics

• Classical economics

According to Classical economists, what role should the government play in resolving a recessionary gap?

• Increase government spending

• Implement monetary policy

• Raise taxes

• Allow market forces to adjust naturally

How do market forces help in resolving a recessionary gap according to Classical economists?

• By increasing taxes

• By reducing interest rates

• By allowing wages and prices to fall

• By increasing government spending

What happens to the aggregate supply when wages and prices fall in a recessionary gap?

• It becomes vertical

• It shifts to the left

• It remains unchanged

• It shifts to the right