In chapter 18, you will learn to solve these economic puzzles: Why did Keynes believe that “animal spirits” and government policy were important to maintain full employment? What are the components of the Keynesian Cross? Why did economists believe the Great Depression was impossible?. | Chapter 18 The Keynesian Model Key Concepts Summary Practice Quiz Internet Exercises ©2000 South-Western College Publishing * In this chapter, you will learn to solve these economic puzzles: Why did economists believe the Great Depression was impossible? What are the components of the Keynesian Cross? Why did Keynes believe that “animal spirits” and government policy were important to maintain full employment? * Who were the Classical Economists? The Classical economists believed that a continuing depression is impossible because markets will eliminate persistent shortages or surpluses * When were the ideas of the Classical Economists widely accepted? Prior to the Great Depression of the 1930’s * What is Say’s Law? The belief of the Classical Economists that the economy was always tending toward full employment * What does Say’s Law say? Supply creates its own demand * Why is Say’s Law a Full Employment theory? Generally speaking, producers produce goods that consumers want and consumers have the money to buy because of the wages they were paid * Under Say’s Law, is Unemployment possible? Yes, but it is a short-lived adjustment period in which wages and prices decline or people voluntarily choose not to work * What changed people’s mind about Say’s Law? The Great Depression and the publication of The General Theory of Employment, Interest, and Money published in 1936 * Why did Keynes’ believe that “supply did not create its own demand”? Aggregate expenditures (demand) can be forever inadequate for an economy to achieve full employment * What is the main idea of this chapter? Keynes’s theory for the determination of consumption and investment expenditures * What determines your family’s Spending for Goods and Services? Disposable income * What is the Consumption Function? The graph that shows the amount households spend for goods and services at different levels of disposable income * What is Savings? Disposable . | Chapter 18 The Keynesian Model Key Concepts Summary Practice Quiz Internet Exercises ©2000 South-Western College Publishing * In this chapter, you will learn to solve these economic puzzles: Why did economists believe the Great Depression was impossible? What are the components of the Keynesian Cross? Why did Keynes believe that “animal spirits” and government policy were important to maintain full employment? * Who were the Classical Economists? The Classical economists believed that a continuing depression is impossible because markets will eliminate persistent shortages or surpluses * When were the ideas of the Classical Economists widely accepted? Prior to the Great Depression of the 1930’s * What is Say’s Law? The belief of the Classical Economists that the economy was always tending toward full employment * What does Say’s Law say? Supply creates its own demand * Why is Say’s Law a Full Employment theory? Generally speaking, producers produce goods that
