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What is Say's Law? |
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Supply creates demand |
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What is autonomous consumption? |
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The amount of money a household will spend completely independent of their disposable income. (necessities) |
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Consumption function is comparing... |
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... price levels and consumer expenditures |
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Above the break even disposable income for the consumption function what occurs? |
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Saving |
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What would produce an upward shift the in consumption function? |
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An increase in consumer wealth |
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The investment demand curve is a relationship between which two components? |
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Business spending for investment goods and saving
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What would produce a leftward shift in the investment demand curve? |
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An increase in business taxes |
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What does the aggregate expenditures function represent? |
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The consumption function, the investment demand curve, and the autonomous consumption |
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When will there be unplanned inventory investment accumulation? |
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When aggregate output exceeds aggregate expeditures |
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The multiplier effect can correct the economy. An increase in equilibrium output is created by: |
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An increase in investment and an increase in spending |
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What is the spending multiplier? |
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1 / (1-MPC) |
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If the value of the MPC is .5 what is the value of the spending multiplier? |
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2 |
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If the MPC is .8 what is the spending multiplier? |
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5 |
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If MPC is .75 a 50 billion dollar decrease in government spending would cause equilibrium output to: |
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Decrease by 200 million |
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If the MPC is .9, a 100 billion dollar increase in planned investment expenditure, other things being equal, will cause an increase in equilibrium output of: |
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1,000 billion |
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According to Keynes, the multiplier effect will restore an economy to full employment if: |
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Government spending were increased
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Equilibrium level of real GDP = 1000 billion. Full employment of real GDP is 1250 billion. MPC is .6. Full employment can be reached if government spending is increased by: |
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100 billion. 1/ (1-.6) x (1250-1000) |
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Define aggregate demand curve |
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The real GDP purchased at different price levels |
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When the supply of credit is fixed, an increase in the price level stimulates demand for credit, which then reduces consumption and investment spending. What is this called? |
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Interest-rate effect |
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The real balance effect occurs because a higher price level reduces the real value of peoples ________ |
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Financial assets |
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The net exports effect is the inverse relationship between _____ and _____ |
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Net exports and price level |
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What would shift the aggregate demand curve to the left? |
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An increase in government spending |
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What would NOT sift the aggregate demand curve to the left? |
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Consumers become more optimistic about the future |
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What theory emphasizes the fact that the economy will correct itself? |
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Classical economics |
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Which theory believes that price system automatically adjusts the economy to full employment in the long run? |
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Classical economics |
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Classical, Keynsian, Intermediate, Monetary. Which is not a range on the eclectic or general view of the aggregate supply curve? |
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Monetary |
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When does macroeconomic equilibrium occur? |
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When aggregate demand equals aggregate supply |
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Along the classical or vertical range of the aggregate supply curve, a decrease in the aggregate demand will increase what? |
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Only the price level |
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If a decrease in resource prices occurs, it will shift the _____ to the _____ |
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Aggregate supply curve . . . right |
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Assuming a fixed aggregate demand curve, a leftward shift in the aggregate supply curve causes a . . . |
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. . . increase in price level and a decrease in real GDP |
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An increase in the price level caused by a rightward shift of the demand curve is called what? |
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Demand-pull inflation
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Workers become pessimistic about their future employment, and start to save more. The economy is on the intermediate range of the aggregate supply curve. What will happen? |
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Real GDP and the price level will fall |
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What is the assumption of the short run aggregate supply curve? |
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Wages are fixed |
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What is the assumption on the long run aggregate supply curve? |
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Both the price level and nominal incomes change by the same percentage |
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Graphically, long run macro equilibrium occurs at the ________ |
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intersection of the aggregate demand, short and long run aggregate supply curves |
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An increase in nominal incomes of workers results in the what? |
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Short run aggregate supply curve shifting to the left |
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An increase in the aggregate demand in the long run will result in _____ in full employment real GDP and _______ in the price level |
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No change; an increase |
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Contracting government spending means: |
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the government spending is decreased |
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What is the spending multiplier? |
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1/ (1-MPC) |
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Tax multiplier is: |
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1- the spending multiplier |
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Who is the main person when talking about supply side economics? |
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Ronald Reagan |
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MPS = what? |
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1-MPC |
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