ECON 272

In Class Exercise Fifteen - Fiscal Policy and Keynesian Economics

1.  Do Keynesian economists agree with Say's Law?  Explain.

2.  What are the four components of aggregate demand in the Keynesian model (write out - don't use abbreviations).

3.  What did Keynes mean by "animal spirits" and how do they relate to investment and consumption?

4.  Explain the Keynesian idea regarding the marginal propensity to consume?  To save?  Relate these ideas to the Keynesian multiplier effect (and explain)?  Example and show on the Keynesian 45 degree model.

5.  Explain why Keynes said that deficit spending (fiscal policy) would be the most effective policy tool to use during the depression and why he wanted to use deficit spending (and not have the government keep a balanced budget).

6.  What knowledge would Keynesian economic planners have to have in order to try to decrease unemployment with fiscal policy (deficit spending for example)?

7.  What questions do you still have about this material?