The Keynesian and Classical Models

Question 1

When wages are lower, production yields the same output, but at a lower cost. The lower costs allow the firm to hire more workers and increase output. Sellers will have to reduce prices to sell the extra output.

How is this advantageous to a seller?

Answer 1

Sellers can afford to reduce prices because of lower labor costs

Question 2

According to Keynes, household spending habits are stable.

Which factor has the most significant impact on consumer spending, according to Keynes?

Answer 2

Level of income

Question 3

According to Leynez, what should the government do when the economy is booming?

Answer 3

The government should cut spending