4. Which of the following statements is false?
a. Keynes believed that the level of investment depends on more than the interest rate.
b.Saving is the difference between disposable income and consumption.
c. Keynes believed that saving is more responsive to changes in income than to changes in the interest rate.
d. According to Keynes, wage rates may fall too quickly when the economy is in a recessionary gap.
e. c and d
The answer is D, but how is the answer D? I know why the answer is not B, since
"disposable income" minus "consumption" would equal "saving".
3. Brain Vargo, an auto repair mechanic who remains unemployed because he refuses to work for less than $1,000 an hour, is:
a. counted as part of the civilian labor force
b. considered frictionally unemployed.
c. an underemployed worker.
d. not counted as part of the civilian labor force.
e. considered as productively active.
I think that the answer is b, am I correct?
Its been a while since I had to study Keynes. That said, in question 4, D is clearly false. Keynes argued that prices, especially wages rates, generally did not adjust in the downward direction. So, when in a recessionary gap, full employment equilibrium was not restored with falling wage rates.
In question 3, B is not the correct answer. Frictional unemployment occurs when a person is inbetween jobs. Assuming that Brain Vargo is continually and actively looking for a job that pays $1000 per hour, I believe the correct answer is A. (If he is not actively looking for work, then one could argue the answer would be D.)
In question 4, the false statement is D. According to Keynes, wage rates may not fall quickly enough to restore full employment when the economy is in a recessionary gap. Keynes argued that prices, especially wages rates, generally do not adjust in the downward direction. So, falling wage rates alone would not necessarily lead to full employment equilibrium.
To arrive at this answer, you can eliminate options A, B, and C as they are true statements. Then you are left with options D and E. You can then analyze each statement and determine if it aligns with Keynesian theory. Keynes believed that wage rates do not adjust quickly during recessions, which contradicts statement D. Therefore, the answer is D.
Now, moving on to question 3, you are correct that the answer is not B. Frictional unemployment occurs when a person is between jobs and actively searching for employment. However, in the given scenario, Brain Vargo is refusing to work for less than $1,000 an hour, which indicates that he is voluntarily unemployed rather than in a transitional job search.
To determine the correct answer, you need to consider the different categories of unemployment. Brain Vargo is not considered underemployed because he is not working at all. Option C, an underemployed worker, would apply if he was working part-time or below his skill level. Option D, not counted as part of the civilian labor force, is also incorrect as Brain Vargo is actively seeking employment. Therefore, the correct answer is A, Brain Vargo is counted as part of the civilian labor force.
Your understanding is correct. In question 4, statement D is false because according to Keynes, wage rates may not fall quickly during a recessionary gap. Keynes argued that wages tend to be sticky downwards, meaning they do not adjust downward easily.
In question 3, statement B is incorrect. Frictional unemployment refers to the temporary period of unemployment while transitioning between jobs. Since Brain Vargo refuses to work for less than $1,000 per hour and remains unemployed, he would not be considered frictionally unemployed. The correct answer is A, where Brain Vargo would be counted as part of the civilian labor force if he is actively seeking employment.