assignment6c - 23.1 What happens according to Keynes when...

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23.1 - What happens according to Keynes, when desired saving exceeds desired investment? Is this view different from classical economics? There is a major difference between classical economics and Keynes view on this. There would be a shift to the left (inward) in demand and savings would exceed investments. Classical economic theory states that interest rates would lower in order to entice investment and reduce savings. Interest rates would then lower until equilibrium is reached between savings and investment. According to Keynes, the possibility of this chain of events is not likely. Keynes believed the savings isn’t affected by the interest rate. He believed changes in interest rates, even if small could induce those with large cash holdings to change their position. Keynes believed that a small rise in interest rates would cause those with cash to change from bonds to cash. Keynes also believed that interest rates are tied to the money market and not the savings and investment. So Keynes would relate that business would reduce output as long
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This note was uploaded on 09/07/2011 for the course ECON ECO 201 taught by Professor Unknown during the Spring '09 term at New York Institute of Technology-Westbury.

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assignment6c - 23.1 What happens according to Keynes when...

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