1. Explain why savings is unlikely to equal intended investment in the Keynesian model.

2. Use the equation of exchange (Ms x V = P x Y) to answer the following:

If Ms rises what would the Keynesians say will happen, all other things equal?

If the government cuts taxes to promote spending what would the Keynesians say would happen, all other things equal?

If Y starts to fall then what would the Keynesians say would happen, all other things equal?

3. Equilibrium GDP is $5000 while full employment is $6000.

What kind of gap is this?

What would the Keynesians say the government should do?

The correct economic policy would cause Aggregate (Demand or Supply) to (rise or fall)?

True or False

Government spending can raise Aggregate Demand and real GDP in the Keynesian model.

Keynesians believe that monetary policy is very powerful at moving real GDP.