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Assume that the economy is initially in a recession

Assume that the economy is initially in a recession - ....

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Assume that the economy is initially in a recession. The equilibrium level of real GDP,  Y 1 , lies below  the natural level,  Y 2 , implying that there is less than full employment of the economy's resources.  Classical economists believe that the presence of unemployed resources causes wages to fall,  reducing costs to suppliers and causing the  SAS  curve to shift from  SAS 1  to  SAS 2 , thereby restoring  the economy to full employment. Keynesians, however, argue that wages are sticky downward and  will not adjust quickly enough to reflect the reality of unemployed resources.  Consequently, the recessionary climate may persist for a long time. The way out of this difficulty,  according to the Keynesians, is to run a budget deficit by increasing government expenditures in  excess of current tax receipts. The increase in government expenditures should be sufficient to 
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