Quiz 5 and 6

If the MCP is .8 and consumption spending increases by $5 million. How much will Real GDP change?

$25 Million

If disposable income increases from $15,000 to $18,000 and consumption increases from $13,000 to $15,250 the marginal propensity to consume is

.75

___________ is the level of RGDP being produced when the actual unemployment rate is equal to the natural unemployment rate

Natural Real GDP

According to Keynesian theory, if Actual Total Expenditures is less than Ideal Total Expenditures, then the economy is in a(n) _________.

Recessionary Gap

Most of our economic growth comes with increases in productivity. This will cause the __________ to increase.

SRAS

According to the classical school of thought, a market economy is

Self-Regulating

According to the classical school of thought, the self regulating mechanism when an economy is in a recession comes from a _________ of labor that causes ________ to fall and the SRAS will increase over time.

Surplus Wage Rates

Equilibrium GDP in the Keynesian model can be found at the intersection of _________ and ________

The TE curve and the 45 degree line

If equilibrium Real GDP is less than Natural Real GDP, then

The economy is in Recession

According to Keynesian Theory:

The solution to a recession would be an increase in TE that would shift AD to the right

The usual results of an adverse supply shock are

a rise in the price level and fall in RGDP

According to Keynesian theory, when the economy is in an inflationary gap, the government's budget should be:

in a surplus

When the government's expenditures are greater than tax revenues:

there is a budget Deficit

Suppose Company XYZ can invest in new Technology that will cost $600,000 and will generate additional profits of $42,000. The rate of return is:

7%

An increase in wages will cause the SRAS curve to

Decrease

According to Keynesian theory, if TE were greater than Real GDP, inventories would ________, signaling producers to __________ production.

Decrease, Increase

Expansionary fiscal policy is used during a recession. This could be done through a(n) ___________ in taxes or a(n) _____________ in government expenditures.

Decrease, Increase

The intersection of AD and SRAS yields the __________ price level and level of RGDP

Equilibrium

One potential problem with fiscal policy is the bias towards ___________ fiscal policy regardless of where we are in the business cycle.

Expansionary

Decreasing personal income tax rates and lowering of interest rates make the Aggregated Demand Curve

Increase