1·Thetwo base economic problems facing every economy are and In general, a Class

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1·Thetwo base economic problems facing every economy are and In general, a Classical Economist would advocateto solve these problems while a Keynesian Economist would advocate using to solve the same problems. 2. Fiscal/Monetary) policy is more effective in fighting a recessiorn because this policy is better at solving the problem that defines a recession, namely According to the Crude Quantity Theory, in the long-run, a decrease in the money supply will cause the 3. curve to If Bob Williams' level of spending increases from $4700 to $5600 when his income increases from $5,000 to $6,000, then it may be concluded that his marginal propensity to save is equal to . a 4. - 5. Economists have defined the proportion of each dollar of income that is saved as the propensity to When AS>AE in the Keynesian income-expenditure graph, it is also true that withdrawals (leakages) areor

Explanation / Answer

1. The two basic economic problems facing evrry economy are Inflation and Unemployment. In general, a classical economist would advocate monetary policy to solve rhese problems while a Keynesian economist would advocate using fiscal policy to solve the same problems.

2. Fiscal policy is more effective during a recession because this policy is better at solving the problem that defines a recession, namely a fall in GDP.

3. Acc. to the Crude quantity theory, in the long run, a decrease in money supply will cause the aggregate demand curve to shift leftwards.

4. The marginal propensity to save = (1-c) = (1-900/1000) = 1-0.9 = 0.1

5. The proportuon of each dollar of income saved is defined as the marginal propensity to save.

6. When AS > AE, it is true that withdrawal are greater than injections and we can expect the economy to increase in ordet to reach the equailibrium.

7. The assumption said that supply creates its own demand and hence the economy is always in full employemnt and keynes changed that to read the theory of effective demand and thus there can both be under employment and over employment.

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1·Thetwo base economic problems facing every economy are and In general, a Class

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