ECON 364

Intermediate Macro Theory
Homework Assignment Three – (37 pts.)

DUE THURSDAY, FEB. 10 at the beginning of class.

Directions:  PLEASE TYPE YOUR ANSWERS.  Copy and paste this document into a word document or print this out and staple it to your answers.

1.  Explain the relationship between the labor theory of value and Marxian exploitation.  Be sure to define both in your answer.  (6 pts.)

2.  Explain why a revolution between the capitalist class and the working class will take place under capitalism, according to Marx?  (6 pts.)

3.  Explain how Keynes differs with the Classical economists with respect to:

a.  markets being self correcting (2 pts.)

b.  what consumption (C) is determined by (or a function of) (4 pts.)

c.  what investment (I) depends upon (or is a function of) (4 pts.)

4.  Explain what the marginal propensity to consume (MPC) in the Keynesian model means. (3 pts.)

5.  Explain the "multiplier effect" in the Keynesian model with respect to a change in investment or government spending or consumption. (4 pts.)

6.  Explain the relationship between the MPC and the multiplier effect. (4 pts.)

7.  What would it mean with respect to the Keynesian multiplier effect if the MPC = 0.  Is this plausible?  Why or why not? (4 pts.)