Chapter 11 Classical - Chapter 11 Classical + Keynesium...

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Chapter 11 Classical + Keynesium Macro Analysis - The classical model- 1770s J.B. say o Say’s Law Supply creates its own demand; hence it follows that desired expenditures will equal expenditures o Assumptions of the classical model Pure competition exists Wages and prices are flexible People are motivated by self interest People cannot be fooled by money illusion- buyers and sellers react to charges in relative prices Income generate by production is enough to purchase all goods and services produced o Equilibrium in the credit market Saved income is not reflected in product demand It is a leakage from the circular flow of income and output Therefore planned consumption spending can fall short of total current real gross domestic product Therefore supply does not necessarily create its own demand Relationship between saving and investment Every dollar saved would become available for firms to invest Saving end up in banks- banks loan it to firms to invest
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This note was uploaded on 05/17/2010 for the course BIO 111 taught by Professor Osikanlu during the Spring '09 term at Moraine Valley Community College.

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Chapter 11 Classical - Chapter 11 Classical + Keynesium...

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