Unit 4: Keynesian M.C. Flashcards
1
Q
Keynesian view of Investment
A
“I” is generally unstable
2
Q
Why is “I” Unstable
A
- Expectations- no one can control
- large number of factors involved in the investment decision
3
Q
Demand for money
A
a. Transaction
b. Precautionary money
c. Asset *
4
Q
Keynesian Business Cycle
A
Recession side
G↑ - T↓ - M↑ - I↓
Expansion side
G↓ - T↑ - M↓ - I↑
5
Q
Tax Multiplier Theory
A
(1- Multiplier)
one minus multiplier
6
Q
Tax Multiplier Reality
A
It depends on what people do with their money
7
Q
How well does monetary policy (changing MS) work (Keynesian)
A
In an expansion = monetary policy works
In a Recession = monetary policy will likely not work
MS↑ -> I Rates↓ -> I↑
8
Q
Accommodating monetary policy/ Crowding out effect
A
G↑ and/or T↓ -> Deficits↑ -> i rates↑
MS↑ —————————–> i rates↓
9
Q
How does M change Q according to Keynesians
A
Investment effect
M↑ -> i rates↓ -> I↑ …
