Answer to Question #193462 in Macroeconomics for Isenathi

Question

In the simplest(or introductory) form of the keynesian model, which decisions can be analyzed

Answer 1

The Keynesian model can be used to assess decisions about unnecessary savings and unemployment. Excessive saving, according to Keynes, is a challenge and a potential cause of economic decline. This is because excessive saving contributes to decreased expenditure and spending, which reduces demand and consumption potential. This can be another spiraling issue, as money not being exchanged is actively reducing prospective employment, revenues, and future investments. High and fixed real wages are often blamed for unemployment. There is more difficulty, according to Keynes, in that societies are extremely resistant to wage cuts and that lowering wages will pose a serious challenge to an economy. Cutting wages, in particular, decreases consumption and can lead to a downward spiral.