economics AD/AS test

assume that the nominal interest rate is 10 percent if the expected inflation rate is 5 percent the real interest rate is?

5%

Calculate MPC

Change in consumption/ Change in income

what is autonomous consumption?

The part of consumption that does not depend on income expenses that cannot be eliminated ex: food rent

AS shifters

a decrease in wages increase in physical capital stock or advancements in technology

inflation

a general increase in prices and fall in the purchasing value inflation is bad for savers but good for investors

automatic stabilizes

economic policies and programs that are designed to offset fluctuations in a nations economic activity with out intervention by the government or policymakers

what is expansion policies?

government policy actions that lead to increase in aggregate demand

an increase in which of the following will increase aggregate demand?

government spending

if the economy is in a severe recession which of the following is the fiscal policy most effective in stimulation production?

government spending increase

keynes economics

he believes to get the economy back to equilibrium is AD ex:lower taxes

an increase in government spending with no change in taxes leads to a

higher interest rate

current equilibrium outputs equals 2,500,000 potential output equals 2,600,000 and the marginal propensity to consume equal .75 under these conditions a keynsian economist is most likely to recommend?

increase government spending by 25,000

supply shocks

is an economy wide phenomenon that affects the cost of firms. + shock- higher productivity of lower energy prices - shock- when economy wide input prices suddenly increase

LRAS shifters

is determined by all factors of production size of work force size of capital stock, levels of education and labor productivity

LRAS output

is determined solely by the factors of production and technology

which of the following is a key feature of keynesian economics?

macroeconomic equilibrium can occur at less than full employment

crowing out refers to the decrease in?

private investment due to increased borrowing by the government

the aggregate demand curve is downward sloping because as the price level increases

purchasing power of wealth decreases

short run shifters

shifts to the right when the price level decreases and the GDP increases

a decrease in labor production will the?

short run aggregate supply curve to the left

spending multiplier?

that an initial amount of government leads to a change in the activity of the larger economy

which of the following would indicate that economic growth has occurred?

the long run aggregate supply curve shifts to the right

what is MPC?

the portion of additional income spent on consumption

stagflation

where theres unemployment and inflation at the same time

stagflation is most likely to be caused by?

a decrease in aggregate supply

the long run aggregate supply curve is likely to shift to the right when?

an increase in productivity

AD shifters include?

anything that will influence the levels of consumption investment government spending and net exports

classical economics

asserts that markets function best with minimal govt interference

a decrease in business taxes would lead to an increase in national income by increasing which of the following?

both aggregate demand and aggregate supply

what is the spending multiplier?

1 divided by the MPS

an increase in the marginal propensity to consume causes an increase in which of the following?

spending multiplier

crowding out is best described as which of the following?

the decrease in consumption or private investment spending caused by an increase in government spending