Explain Keynes\’ multiplier concept in the context of a recession, i.e., how did Keynes theorize how a recessionary would unfold and then persist.
There is a long-running debate between the Classical School and Keynes regarding the ability of the economy to return to full-employment equilibrium after a recessionary gap (S>I) has emerged. This is often known as the Keynes vs. Classics debate. First, explain why the Classical School believes that the economy will automatically fix this situation, i.e., why/how it believes full-employment will be restored. Your response should be detailed and focus on 3 particular \”prices\” in the economy. (Hint: remember the Classicals\’ three-legged stool.) Second, explain why/how Keynes attempts to refute the Classical\’s auto-correction\” story. Then, explain Keynes\’ multiplier concept in the context of a recession, i.e., how did Keynes theorize how a recessionary would unfold and then persist. Be specific and concise. And, make sure you indicate how Keynes thought about the origins of a recession and the role expectations played in this process. Finally, explain each school of thought\’s respective policy conclusions, i.e., how does each school propose to \”fix\” a recession? The content of your essay is far more important than length!
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