Question

1.How does Keynes differ in his view on Say’s Law from the classical economists?

2.What is the difference between an open economy and a closed economy?

3.True or False Consumption is the smallest part of TE.

4.Our economy is at a decrease of $400 billion dollars from our natural real GDP. What is the state of the economy? What does Keynesian economist believe should be done? The government increases its spending $70 billion dollars. At the same time, consumption decreases its spending by $25 billion dollars. The MPC is .80. What is happening? What is the result? Do we reach long-run equilibrium? If not, what should the government do?

5.RGDP is at an increase of $450 billion dollars above our natural real GDP. What is the state of the economy? What does Keynesian economist believe should be done?The government decreases its spending $45 billion dollars. At the same time, consumption increases its spending by $25 billion dollars. The MPC is .95. What is happening? What is the result? Do we reach long-run equilibrium? If not, what should the government do?

6.The federal budget consists of two things. What are they and how do they relate to each other in a balanced budget, budget surplus, and budget deficit?

7.What is the Laffer Curve and what does it tell us about tax rates and tax revenue?

Answer 1

1.

Keynes differs from Say's law in a manner that Say's law said that supply will create its own demand. But, Keynes said that it is the demand that creates its supply. At present, It is Keynes view that is more accepted and Say's law has become obsolete.

2.

Open economy interacts with the rest of the world in terms of imports and export, but closed economy does not interact with the external world. So, open economy has net export as fourth sector, that is absent in case of a closed economy.

3.

False

Consumption is the biggest part of the TE.

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