Question

Explain why the M-C-M’ economy is a more accurate representation of the real economy by using what you have learned about Keynes’ effective demand theory. (Your answer should include the concepts covered in the chapters by Dillard, such as MEK, MPC, private sector investment, etc.). According to Keynes, how does the adjustment process work when in a recession? (Hint, inventories and quantities play a pivotal role.) What role does expectations (animal spirits) of the near future play in his argument? Give two common sense reasons why businesses will not want to lower prices immediately when experiencing a decrease in demand (sales). Does this validate the orthodox or heterodox theory of the economic process?