Question

Q1 What force drives a Keynesian model to equilibrium?
  
A Disequilibrium in resource markets
B Unintended changes in inventories
C Government action
D Trick question: Keynesian models never reach equilibrium

Q2 What did Keynes mean when he said: "In the long-run we are all dead"?
  
A All people eventually die
B There is no hope for economic conditions to improve
C The long-run is not the appropriate time frame when we are in a recession
D Death rates rise during a recession

Answer 1

1). The answer is: C). Government action.

The Keynesian model described above is completely demand-driven. This relationship is what drives the model to equilibrium. Remember, in this simple model, firms and the government want to buy the same amount no matter what their income level; consumers' demand, however, is a function of disposable income.

2). The answe is: C). The long-run is not the appropriate time frame when we are in a recession.

“In the long run, we are all dead” meaning that capitalism will fail and liberal capitalism will succeed runs through this enjoyable book that will appeal to general readers as well as those with specialist knowledge.