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