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CH9-07.04.09 - 3 In a recession prices do not always...

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07.04.2009 CHAPTER 9 BUILDING THE AGREEGATE EXPENDITURES MODEL The Great Depression and Keynes The Great Depression (1929): Lasted a decade and struck all countries. Low production, low investment and low employment. Keynes and Keynesian Economists He replaced the classical modal by the Keynesian modal explaining first how the output and employment level is determined in an aggregate expenditures modal at any economics. John Maynard Keynes and some follower economists refuted the ideas of classical economists. Here are the controversial points made by Keynes: 1. Earned income is not always spent, it can also be saved. 2. Savings are not automatically converted into investments. Investment decisions do not always depend on interest rates.
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Unformatted text preview: 3. In a recession, prices do not always decrease, they may remain at the same level. Prices are downwardly inflexible. (Ücretler aşağı doğru her zaman esnek olmayabilir.) Simplifications When building the Keynesian Modal we assume that GDP=NI=DI. In order to equalize GDP, NI and DI, we have to assume the followings: a. A closed economy. b. There is no government expenditure. c. Savings are all personal. d. Depression is zero. e. Net foreign factor income is zero. Tools of the Aggregate Expenditure Modal Total output and employment level depend on aggregate expenditures. First expenditures increase, output is also increase and then employment is increase. Consumption and Saving...
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