Question

Are these Classical or Keynesian statements? and WHY???

A. “IF THEY WANT TO HELP THE ECONOMY, PRODUCERS FOR AT AND T IN THE U.S. SHOULD INCREASE THEIR INVESTMENT SPENDING ON FACTORIES AND PLANT AND EQUIPMENT BECAUSE NOT ONLY DID INTEREST RATES DECLINE BUT THEY FEEL OPTIMISTIC THAT THEY WILL EXPECT TO MAKE $40 MILLION IN PROFITS IN SELLING PHONES TO ITS CUSTOMERS FOR THE THIRD QUARTER OF 2015.”

B. “IF THEY WANT TO HELP THE ECONOMY, CONSUMERS SHOULD SAVE EVERY DOLLAR THEY HAVE AND INVEST ALL OF THEIR SAVINGS IN A SPORTS SHOP”

C. “TO INCREASE CONSUMER SPENDING IN THE U.S. ECONOMY, THE GOVERNMENT NEEDS TO CUT FEDERAL TAXES AS WELL AS LOWER INTEREST RATES.”

D. “GOVERNMENT SHOULD NOT INTERVENE IN THE CAR MARKET BECAUSE ECONOMISTS FEEL THAT THE MARKET WILL WORK ITSELF OUT.”

Answer 1

A. Keynesian view

Investment on plants and equipments in factories will raise the marginal efficiency of capital. Investment is dependent upon not only the interest rate but also on the marginal efficiency of capital.

B. Classical view

According to the classical theory whatever is saved is invested in the economy.

C. Keynesian view

According to the Keynesian theory government need to intervene for the smooth functioning of the economy.

D. Classical view

Classical economists believed in the principal of laissez-faire. They didn't favour government intervention.