Topic 2

Question 1

how to begin a demand and supply model:

Answer 1

1. purpose and assumptions
2. categorise variables into exogenous and endogenous
3. establish the line of causality

Question 2

what is contained in the demand and supply model?

Answer 2

-quantity
-income
-price
-demand
-price of substitutes/complements
-taxes

Question 3

what is contained in the keynesian model of income determination?

Answer 3

-total spending
-labour
-output
-investments
-wages
-exports
-savings

Question 4

Keynesian Economics:

Answer 4

-J. M. Keynes (1883 – 1946)
-The General Theory 1936
-Capitalist system and
market economy
-Instability in the economy
-Wage/price stickiness
-Unemployed caused by
demand deficiencies
-Role for government
-Budgetary policies

Question 5

Classical Economics:

Answer 5

-Adam Smith (1723 – 1790)
-The Wealth of Nations 1776
-Capitalist system and market
economy
-Stability of the market
-Wage/price flexibility
-Unemployment caused by
high wages
-Non-interventionist policy
Laissez-faire