Economics: Private and Public Choice (MindTap Course List)
15th Edition
ISBN: 9781285453538
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Question
Chapter ST4, Problem 1CQ
To determine
Explain the Keynesian concept.
Expert Solution & Answer
Explanation of Solution
According to Keynes, only the government intervention with increasing spending can stimulate the economy. When the government spends money, the investments will increase. An increase in the investments cause to increase the employment and thereby the output in an economy. On the final result, aggregate demand will increase. The government spending always has a multiplier effect on an economy. So, it does not matter how much the government spends. That’s why the Keynes says that ‘even a broken window helps the glass man have some wealth’.
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Students have asked these similar questions
In the simple Keynesian model, if aggregate expenditure is less than GDP, output will
a)decline as firms increase their prices to stop the buildup of inventories
b)increase as firms increase production to try to stop depletion of inventories
c)remain unchanged indefinitely unless government takes action
d)increase as firms cut their prices to try to stop depletion of inventories
e)decline as firms cut production to stop the buildup of inventories
Keynes used the term “animal spirits” to refer to
business optimism or pessimism that affects investment decisions.
policy makers’ willingness to shift AD in response to recessions.
the fact that higher income households are likely to have a lower MPC.
government spending on farm subsidies.
According to Keynes, wealth or credit is a factor that affects consumption. An example of wealth is A,B,C,OR D one answer
a
an increase in expected future income.
b
a decline in interest rates.
c
an increase in economic output.
d
an increase in the value of stock
Chapter ST4 Solutions
Economics: Private and Public Choice (MindTap Course List)
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Similar questions
- What is Keynes; law?arrow_forwardIn 2009, the US Federal government cut taxes by approximately $300 billion, increased government spending by approximately $300 billion, and increased transfer payments by approximately $200 billion. Answer the following questions, assuming the marginal propensity to consume was 0.75. What was the maximum change in GDP from the government spending? Show your work.arrow_forwardAccording to Keynes, a. government spending should decrease during recessions. b. aggregate demand is most important to achieve potential output. c. aggregate supply is most important to achieve potential output. d. the government should not utilize fiscal policy to influence economic activity.arrow_forward
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