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- Why did Keynes believe that the proper response to a period of recession was for the government to increase its spending? How could this policy help to combat recession? Use diagram.Discuss how Keynesian economic can help a country facing an economic recession.Calculate the marginal propensity to save when total saving increases from $200 billion to $300 billion as a result of increase in income from $900 to dollar $1200 billion.
- Explain the relationship between consumption and saving in the Keynesian model.The keynesian school of thought argues that during a recession… a) Governments should reduce spending and increase taxes b) Governments should increase spending and reduce taxes c) Government should increase spending and increase taxes d) Government should reduce spending and reduce taxes.Why Keynes argues that the “Classical” approach is a “special case” while his approach is the “general case”?
- What role do inventories play in the equilibrating process in the simple Keynesian model (as described in the TE-TP framework)?According to the IS-LM model, what happens to the interest rate,income,consumption and investment when Government increase purchases and taxes by the same amountKeynes viewed consumption as an activity based on psychology. Discuss how the work of David Laibson supports Keynes?