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Economics 201 Ch 8

Principles of Economics Ch 8

QuestionAnswer
The economist John Maynard Keynes (Canes) published what book? The General Theory of Employment, Interest, and Money.
Keynesian Theory Holds that factors other than the interest rate would affect savings and investment.
Keynesian Theory rejects which theory? Say's Law
According to Keynesian Theory, the solution to a recessionary gap would be: An increase in Total expenditures to shift the AD curve right.
Components of Total Expenditures Consumption, investment, government purchases, and net exports.
What is the largest of the four types of spending making up Total Expenditures? Consumption
Consumption is determined primarily by: Disposable Income
Consumption Function The curve showing the relationship between disposable income and consumption.
Marginal Propensity to Consume (MPC) The slope of the consumption function.
MCP = Change in Consumption / Change in Income
When the consumption function lies above the 45 degree angle line: It indicates consumption is greater than disposable income.
When the consumption function lies below the 45 degree angle line: It indicates consumption is less than disposable income.
When consumption is less than disposable income, the distance between the two line represents: The amount of saving.
When consumption is greater than disposable income, the distance between the two line represents: The amount of dissaving.
A Total Expenditures curve shows the relationship between: Total Expenditures and Real GDP.
What assumptions are made in deriving a Total Expenditures curve? 1. Consumption is directly related to Real GDP. 2. The levels of investment, government purchases, and net exports are all unrelated to the current level of Real GDP.
In Keynesian Theory, equilibrium Real GDP occurs: Where Total Expenditures equals Real GDP (total production).
Ideally, equilibrium Real GDP will occur when? At Natural Real GDP.
Multiplier = 1 / (1 - MCP)
Change in Real GDP = Initial Change x Multiplier
Created by: dengler
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