Keynesian vs. Classical
Who was the economist that challenged classical economics?
John Maynard Keynes
What does Keynes say happens to wages during a deflationary gap?
Wages tend to remain sticky and do not fall easily.
What is the shape of the Keynesian AS curve?
It has three segments: flat, upward-sloping, and vertical.
Why won’t the economy 'let it go' like Elsa in Frozen when there’s a deflationary gap?
Because wages and prices are sticky and don’t fall easily—even when they should!
What is the square root of 256?
16
What is one belief of classical economists about how economies fix themselves?
The economy is self-correcting and will return to full employment on its own.
Why don’t firms lower prices when wages stay the same?
Because it would reduce their profits.
What does the flat portion of the AS curve represent?
A situation with many idle resources where output can increase without price increases.
If the economy were a party, when would Keynes say you need a DJ (government) to step in?
When nobody’s dancing (spending), the DJ needs to pump up the volume (stimulate demand)!
What element has the chemical symbol W?
Tungsten
What did Keynes argue about how long an economy can stay in short-run equilibrium?
It can stay in short-run equilibrium for a long time, especially in a recession.
What term describes why prices don’t fall easily, even in downturns?
Price and wage stickiness.
What happens to output and prices in the intermediary segment?
Output rises, but there is some upward pressure on prices.
What would happen if you yelled ‘Cut Wages!’ in a crowded Keynesian theater?
Nothing. Wages are sticky—no one’s moving.
What programming language is most commonly used for web development alongside HTML and CSS?
JAVA
According to Keynes, when should the government intervene in the economy?
When there is high unemployment or a deflationary gap.
What two things remain “sticky” during a deflationary gap?
Wages and prices.
What happens when AD increases in the vertical segment of the AS curve?
Prices rise, but output stays the same.
Why doesn’t a pizza shop owner cut prices when sales slow down, according to Keynes?
Because her workers still want full wages, and cutting prices would shrink profits. Sticky prices!
What is the freezing point of water in Fahrenheit?
32°F
Why did Keynes believe classical theory failed during the Great Depression?
Because wages and prices did not fall enough to restore full employment.
Explain how sticky wages can lead to prolonged unemployment.
If wages don’t fall, firms don’t hire more workers, keeping unemployment high.
Why is the flat portion horizontal while the vertical portion is steep?
The flat portion reflects idle resources, while the vertical portion reflects full resource utilization.
What’s the difference between a lazy couch potato and a Keynesian economy in a recession?
Nothing—both need a little push (like government spending) to get moving again.
Mount Kilimanjaro is located in which country?
Tanzania