Critical Thinking Questions

14 . Would you expect to see long-run data trace out a stable downward-sloping Phillips curve? 15 . What is the Keynesian prescription for recession? For inflation? 16 . How did the Keynesian perspective address the economic market failure of the Great Depression?

Critical Thinking Questions

17 . In its recent report, The Conference Board’s Global Economic Outlook 2015, updated November 2014 (http://www.conference-board.org/data/globaloutlook.cfm), projects China’s growth between 2015 and 2019 to be about 5.5%. International Business Times (http://www.ibtimes.com/us-exports-china-have- grown-294-over-past-decade-1338693) reports that China is the United States’ third largest export market, with exports to China growing 294% over the last ten years. Explain what impact China has on the U.S. economy. 18 . What may happen if growth in China continues or contracts? 19 . Does it make sense that wages would be sticky downwards but not upwards? Why or why not? 20 . Suppose the economy is operating at potential GDP when it experiences an increase in export demand. How might the economy increase production of exports to meet this demand, given that the economy is already at full employment? 21 . Do you think the Phillips curve is a useful tool for analyzing the economy today? Why or why not? 22 . Return to the table from the Economic Report of the President in the earlier Work It Out feature titled “The Phillips Curve for the United States.” How would you expect government spending to have changed over the last six years? 23 . Explain what types of policies the federal government may have implemented to restore aggregate demand and the potential obstacles policymakers may have encountered.

FIGURE 13.1Impact of the Great RecessionWe can see the impact of the Great Recession in many areas of the economy that impact our daily lives. One of the most visible signs was in the housing market where many people were forced to abandon their homes and other buildings, including ones midway through construction. (Credit: modification of "House" by A McLin/Flickr Creative Commons, CC BY 2.0)

In this chapter, you will learn about:

• The Building Blocks of Neoclassical Analysis
• The Policy Implications of the Neoclassical Perspective
• Balancing Keynesian and Neoclassical Models

BRING IT HOME Navigating Uncharted Waters The Great Recession ended in June 2009 after 18 months, according to the National Bureau of Economic Research (NBER). The NBER examines a variety of measures of economic activity to gauge the economy's overall health. These measures include real income, wholesale and retail sales, employment, and industrial production. In the years since the official end of this historic economic downturn, it has become clear that the Great Recession was two-pronged, hitting the U.S. economy with the collapse of the housing market and the failure of the financial system's credit institutions, further contaminating global economies. While the stock market rapidly lost trillions of dollars of value, consumer spending dried up, and companies began cutting jobs, economic policymakers were struggling with how to best combat and prevent a national, and even global economic collapse. In the end, policymakers used a number of controversial monetary and fiscal policies to support the housing market and domestic industries as well as to stabilize the financial sector. Some of these initiatives included: