In Keynesian Theory several Models are used to explain how t

In Keynesian Theory, several Models are used to explain how the economy operates. In Model I (a one sector model), AE1 includes the n Model I, AE2 represents the sum of expenditures from the sector and the sector. In Model III, AE3 represents the sum of expenditures from the, the Model IV consists of Model Ill plus the inclusion of the and the sectors. , sector. 35. Would you say the Obama Administration seems to use Classical Theory, Keynesian Theory, or Supply-Side Theory to guide its economic policies? 36. The amount of consumer spending that takes place when income is zero is called consumption. 37. If citizens of an economy spend 80% of an increase in income and that economy experiences an injection of $125 billion of investment spending, the equilibrium level of income will (? or ? or stay the same) by $ billion. 38. The assumption in Keynesian Theory that there will be no change in prices as long as there are resources that are unemployed results in an Aggregate Supply curve that looks like

Solution

34.) AE1 : household sector

AE2 household & business sector

AE3 : household + business + government sector

AE4 : foreign sector inclusion

Question 35) Keynesian theory

Q 36 Autonomous consumption

Q 37 increases , MPC is .8, so multipier is 1/(1-MPC) = 5, thus equilibrium income level is 5*125= 625 billion , so increases by 500 billion

Q 38 horizontal AS curve