(L6) Sandmo Chapter 15 Flashcards
What distinction did traditional economics often overlook?
Traditional economics did not strongly distinguish between microeconomics and macroeconomics.
What was the classical view on market forces?
The classical view was that market forces would correct issues like unemployment through wage adjustments in the long run.
How did Keynes change the view on macroeconomics in the 1930s?
Keynes focused on aggregate demand and its role in unemployment and inflation, forming the basis for macroeconomic theory.
What were Keynes’ early works?
‘A Treatise on Probability’ contributing to probability theory and ‘The Economic Consequences of the Peace’ regarding post-WWI reparations.
What did ‘The General Theory’ argue for?
A more active role for government in stabilizing the economy through public spending and taxation.
How did Keynes view the role of government during economic downturns?
He emphasized that government intervention could help achieve full employment during downturns.
What did Keynes challenge about wage and price adjustments?
He challenged the notion that wage and price adjustments could ensure full employment, suggesting government action could remedy demand failures.
What did Keynes critique about classical economics on labor and wages?
He argued that classical theory fails to account for involuntary unemployment due to nominal wage rigidity.
What principle explains how investment increases can amplify income and consumption?
The ‘investment multiplier’ principle.
What does the investment multiplier depend on?
The magnitude of the investment multiplier effect depends on the marginal propensity to consume.
How did Keynes’ theory differ from classical economics regarding investment and interest rates?
Keynes emphasized the sensitivity of investment demand to interest rates, in contrast to the classical view.
What was Keynes’ perspective on the role of money in economic policy?
He was skeptical about the efficacy of monetary policy for macroeconomic stabilization.
What policy did Keynes favor for economic stabilization?
He favored fiscal policy through public expenditure and taxation.
What is the ‘Keynesian Revolution’?
A term capturing the sweeping change in economic thought precipitated by Keynes’ theories.
What was Keynes’ influence on economic research?
He influenced the development of new theories and empirical research beyond his own contributions to theory and policy.
