Economics (MindTap Course List)
Economics (MindTap Course List)
13th Edition
ISBN: 9781337617383
Author: Roger A. Arnold
Publisher: Cengage Learning
Question
Book Icon
Chapter 10, Problem 1QP
To determine

The position of Keynes and classical school about wages, prices, and Say’s law of market.

Expert Solution & Answer
Check Mark

Explanation of Solution

According to the classical economists, the economy is always self regulating and does not need any intervention of the government to control its activities other than providing military support. Thus, they demanded the Laissez-Faire economy where the economic transactions of the economy are free from the government regulations, tariffs, and interventions. Thus, the wages and prices are freely flexible under the classical ideology and Say's law of market states that the supply always creates its own demand leading to equilibrium between the demand and supply.

However, according to Keynes, the economy should not be allowed to freely fluctuate the prices and wages, as it will take long years to derive a new equilibrium as well as the money market will not allow Say’s law of market to hold true for the economy. The money acts as a medium of exchange as well as a medium of storage and differed payments, which cause the demand to fall and the savings to increase. This might lead to Say’s law of market to become false and there should be a regulatory to regulate and lead the economy toward equilibrium condition as soon as possible.

Thus, the classical economists argued for the Laissez-faire economy with the strong power to Say’s law market, whereas the Keynes does the inverse.

Economics Concept Introduction

GDP: The GDP is the gross domestic product of an economy, which is the summation of money value of all the goods and services produced within the domestic boundary of the economy.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
6. Rent seeking The following graph shows the demand, marginal revenue, and marginal cost curves for a single-price monopolist that produces a drug that helps relieve arthritis pain. Place the grey point (star symbol) in the appropriate location on the graph to indicate the monopoly outcome such that the dashed lines reveal the profit-maximizing price and quantity of a single-price monopolist. Then, use the green rectangle (triangle symbols) to show the profits earned by the monopolist. 18 200 20 16 16 14 PRICE (Dollars per dose) 12 10 10 8 4 2 MC = ATC MR Demand 0 0 5 10 15 20 25 30 35 40 45 50 QUANTITY (Millions of doses per year) Monopoly Outcome Monopoly Profits Suppose that should the patent on this particular drug expire, the market would become perfectly competitive, with new firms immediately entering the market with essentially identical products. Further suppose that in this case the original firm will hire lobbyists and make donations to several key politicians to extend its…
Consider a call option on a stock that does not pay dividends. The stock price is $100 per share, and the risk-free interest rate is 10%. The call strike is $100 (at the money). The stock moves randomly with u=2 and d=0.5. 1. Write the system of equations to replicate the option using A shares and B bonds. 2. Solve the system of equations and determine the number of shares and the number of bonds needed to replicate the option. Show your answer with 4 decimal places (x.xxxx); do not round intermediate calculations. This is easy to do in Excel. A = B = 3. Use A shares and B bonds from the prior question to calculate the premium on the option. Again, do not round intermediate calculations and show your answer with 4 decimal places. Call premium =
Answer these questions using replication or the risk neutral probability. Both methods will produce the same answer. Show your work to receive credit. 6. What is the premium of a call with a higher strike. Show your work to receive credit; do not round intermediate calculations. S0 = $100, u=2, d=0.5, r=10%, strike=$150
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Macroeconomics
Economics
ISBN:9781337617390
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Macroeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Text book image
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Text book image
Principles of Economics 2e
Economics
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:OpenStax
Text book image
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning