ECON 2200 Lecture Notes - Lecture 8: John Maynard Keynes, Household Debt, Classical Economics
Document Summary
John maynard keynes argued that government has an important role in stabilizing a distressed economy: keynesians argued that prices and wages were sticky, or slow to adjust, keynes published the general theory in 1936. Aggregate expenditures: consist of components of gdp that are measured by spending, gdp = ae = c + i + g + (x-m, consumption (c) is the largest component, representing nearly 70% of gdp. Consumption is the portion of income not saved: income = c+s. Keynesian consumption function: consumption spending grows as income grows but not as fast, as income rises, savings rise as a percentage of income, classical economists believe that interest rates determine saving, while keynesians believe that income determines savings. Marginal propensity to consumer (mpc) and save (mps) Change in consumption given a change in income. Change in saving given a change in income ( c/ y) ( s/ y)
