Econ 100: Chapters 8-10

In the intermediate range of the aggregate supply curve, higher aggregate demand will increase __________.

Both the price level and real GDP

Business spending (investment) is based on current market interest rates

Business Spending Theory

If your disposable personal income increases from 40,000 to 48,000 and your consumption increases from 35,000 to 39,000 your marginal propensity to consume (MPC) is __________.

0.50

The sum of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS) always equals __________.

1

Which of the following would shift the aggregate demand curve to the left?

A decrease in government spending

A downward movement along the investment demand curve would be caused by __________.

A decrease in the rate of interest

Looks at relationship between the average price of goods and the total level of spending (C+I+G+X+M)

Aggregate demand (AD)

Model looks at relationship between spending production in prices

Aggregate demand (AD)/aggregate supply (AS) model

The sum of consumption (Z), investment (I), government spending (G), and net exports (X-M), is called __________.

Aggregate expenditures

Spending which is not related to independent disposable income, level of spending that occurs when disposable income equals zero

Autonomous Consumption

The marginal propensity to consume (MPC) is computed as change in __________.

Consumption divided y the change in disposable personal income.

Which of the following would cause a rightward shift in the aggregate supply curve?

Lower oil prices

GDP is greater than AE at the full employment/maximum production level, decreased efficiency, and spending

Definition of recessionary gap

A movement along the consumption function is caused by a change in _______.

Disposable Income

The consumption function shows the relationship between consumer expenditures and ________.

Disposable Income

If consumption spending is larger than disposable income _________.

Dissavings occur

In the aggregate expenditures-output model, if the aggregate expenditures (AE) are greater than GDP then __________.

GDP increases

When the MPC gets smaller, the spending multiplier __________.

Gets smaller

Real investment spending is __________ real personal consumption.

Highly volatile compared to

Which of the following options could be used to eliminate a recessionary gap?

Increased Investment

Production can expand, prices go up, which causes inflation

Inflationary Gap

If a major technological breakthrough occurs then the __________.

Investment demand curve will shift upward

Absolute income theory, consumption is based on (function of) disposable income average

Keynes

Business spending is based on future profit expectations

Keynes 2

If a nation imports more than it exports, then its net exports are __________.

Negative

The investment demand curve as a function of various possible interest rates for the entire economy is assumed to be __________.

Negatively sloped

The investment demand curve shows the amount business spends for investment goods at different possible __________.

Rate of interest

Using the aggregate expenditure output model, assume the aggregate expenditure (AE) line is below the 45-degree line at full employment GDP. This vertical distance is a __________.

Recessionary Gap

The part of disposable income NOT spent on consumption is defined as __________.

Savings

Which of the following is not a component of aggregate demand curve?

Savings

The aggregate demand curve __________.

Shows the level of GDP purchased in the economy at different possible price levels during a period of time

Small changes in spending (by business, government, consumer) will trigger larger changes in GDP, Y, C

Spending Multiplier Effect

The marginal propensity to save is __________.

The change is saving divided by the change in disposable income

The aggregate demand curve will shift right when there is __________.

The expectation that future consumer income will rise

Suppose an income increase in government spending stimulates GDP without affecting the price level. What is the relevant range of the aggregate supply curve in this case?

The keynesian range

The aggregate supply curve is defined as __________.

The real GDP produced at different price levels

In the aggregate expenditures-output model equalibrium occurs if __________.

There is not unplanned inventory depletion or accumulation

In the aggregate expenditures-output model, if the aggregate expenditures (AE) are less than GDP then __________.

Unemployment Decreases

An increase in the price level, other things remaining the same, may be expected to result in _________ the consumption function_.

a downward shift of

An upward shift in the consumption function, other things being equal, could be caused by households __________.

becoming optimistic about the state of the economy