Question

Explain very briefly if the following statements are true or false. Mathematical or graphic treatment will be appreciated wherever possible or necessary.

While in the classical model with flexible wages and prices both output and employment are determined in the goods market by the demand for and supply of goods, in Keynes’ model with fixed money wages they are not.

In Keynes’ model the important role of the interest rate is to bring the real demand in line with supply of money in the money market, and not aggregate savings in line with investment at full employment.

The neutrality of money in the classical model implies that a fiscal policy increase in government expenditures has no real effects.

Answer 1