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eluminate 1 - Macroeconomic Models 1 What are the major...

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Macroeconomic Models 1. What are the major points of the Keynesian Economic Model? Keynes' economic theory was based on an circular flow of money. In Keynes' theory, one person's spendings goes towards anothers earnings, and when that person spends her earnings she is, in effect, supporting anothers earnings. This circle continues on and helps support a normal functioning economy. When the Great Depression hit, people's natural reaction was to hoard their money. Under Keynes' theory this stopped the circular flow of money, keeping the economy at a standstill. 2. What are the major points of the Classical Economic model? Classical economics is based on the idea that the operation of unrestricted markets generates aggregate or national production that fully utilizes the economy's resources and maintains full employment. The three primary assumptions of classical economics are flexible prices, Say's law, and the saving-investment equality. 3. What is a multiplier and how is it manifested in both models? Keynesian economists often calculate multipliers that measure the effect on aggregate demand only. the equilibrium level of real GDP, Y , is equal to the level of autonomous expenditure, A , multiplied by m , the Keynesian multiplier. Because the mpc is the
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