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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
Publisher: Cengage Learning
ISBN: 9781337617383
BuyFind

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
Publisher: Cengage Learning
ISBN: 9781337617383

Solutions

Chapter
Section
Chapter 10, Problem 1QP
Textbook Problem

How is Keynes’s position different from the classical position with respect to wages, prices, and Say’s law?

Expert Solution
To determine

The position of Keynes and classical school about wages, prices, and Say’s law of market.

Explanation of Solution

According to the classical economists, the economy is always self regulating and does not need any intervention of the government to control its activities other than providing military support. Thus, they demanded the Laissez-Faire economy where the economic transactions of the economy are free from the government regulations, tariffs, and interventions. Thus, the wages and prices are freely flexible under the classical ideology and Say's law of market states that the supply always creates its own demand leading to equilibrium between the demand and supply.

However, according to Keynes, the economy should not be allowed to freely fluctuate the prices and wages, as it will take long years to derive a new equilibrium as well as the money market will not allow Say’s law of market to hold true for the economy. The money acts as a medium of exchange as well as a medium of storage and differed payments, which cause the demand to fall and the savings to increase. This might lead to Say’s law of market to become false and there should be a regulatory to regulate and lead the economy toward equilibrium condition as soon as possible.

Thus, the classical economists argued for the Laissez-faire economy with the strong power to Say’s law market, whereas the Keynes does the inverse.

Economics Concept Introduction

GDP: The GDP is the gross domestic product of an economy, which is the summation of money value of all the goods and services produced within the domestic boundary of the economy.

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Chapter 10 Solutions

Economics (MindTap Course List)
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Ch. 10.4 - What happens in the economy if total expenditures...Ch. 10 - How is Keyness position different from the...Ch. 10 - Classical economists assumed that wage rates,...Ch. 10 - Give two reasons explaining why wage rates may not...Ch. 10 - How was Keyness position different from the...Ch. 10 - According to some economists, why might business...Ch. 10 - Given the Keynesian consumption function, how...Ch. 10 - Look at the Keynesian consumption function: C = C0...Ch. 10 - Using the Keynesian consumption function, prove...Ch. 10 - Explain the multiplier process.Ch. 10 - What is the relationship between the MPC and the...Ch. 10 - Explain how a rise in autonomous spending can...Ch. 10 - In which factors will a change lead to a change in...Ch. 10 - According to Keynes, can an increase in saving...Ch. 10 - What factors will shift the AD curve in the simple...Ch. 10 - According to Keynes, an increase in saving and a...Ch. 10 - Can a person believe that wages are inflexible...Ch. 10 - According to Keynes, can the private sector always...Ch. 10 - What does the aggregate supply curve look like in...Ch. 10 - In the simple Keynesian model, increases in AD...Ch. 10 - Suppose consumption rises while investment and...Ch. 10 - Explain how to derive a total expenditures (TE)...Ch. 10 - What role do inventories play in the equilibrating...Ch. 10 - Identify the three states of the economy in terms...Ch. 10 - If Real GDP is 10.4 trillion in Exhibit 13, what...Ch. 10 - How will a rise in government purchases change the...Ch. 10 - Compute the multiplier in each of the following...Ch. 10 - Write an investment function (equation) that...Ch. 10 - Economist Smith believes that changes in aggregate...Ch. 10 - Use the accompanying figure to explain the...Ch. 10 - The TE curve in Exhibit 12 (d) is upward sloping...Ch. 10 - In Exhibit 12(d), what does the vertical distance...Ch. 10 - In the accompanying figure, explain what happens...Ch. 10 - In the accompanying figure, if Natural Real GDP is...

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