Situation abruptly emerges in the economy

Reference no: EM13683889

Suppose the following situation abruptly emerges in the economy: S > I. First, explain what this situation implies. Then, with reference to flexible prices, interest rates, and wages, describe why Classical economists believed this situation would be automatically corrected -- be specific. Then describe why Keynes believed this situation would not be automatically corrected. In particular, explain why he believed this situation could initiate a multiplier process and explain this multiplier process in detail, i.e., step by step. Finally, describe what policy Keynes prescribed in order to fix this situation.

Reference no: EM13683889

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