Economics

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.)

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