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Econ 114 > 3.4-3.5 > Flashcards

3.4-3.5 Flashcards

1
Q

shows by how many times an increase in any autonomous expenditure increases income

A

The Multiplier

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2
Q

refers to an economic factor that when increased or changed causes increases or changes in many other related economic variables

A

The Multiplier

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3
Q

investment increases when firms anticipate

A

lower interest rate or higher profits

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4
Q

the size of the Multiplier depends on the

A

slope of the AE curve

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5
Q

in the multiplier expression 1/1-b,

b = and 1=

A 
b= marginal propensity to consume
1= total disposable income
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6
Q

the steeper the slope of the AE curve the ______ the Multiplier

A

larger

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7
Q

the gentler the slope of the AE curve the _______ the Multiplier

A

lower

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8
Q

is a process spreading overtime

A

The Multiplier

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9
Q

the size of the Multiplier depends on the slope of the AE curve which s determined by

A
  • marginal propensity to consume
  • marginal tax rate
  • and in an open economy, the marginal rate of imports
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10
Q

the higher the MPC the _____ the slope of the AE curve

A

steeper

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11
Q

the higher the marginal rate of imports (MPM) the ______ the slope of the AE curve

A

gentler

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12
Q

the higher the Marginal Tax Rate, the ______ the slope of the AE curve

A

gentler

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13
Q

the 4 other multipliers in addition to Autonomous Expenditure Multiplier

A
  1. government expenditure multiplier (GEM)
  2. Autonomous tax multiplier (ATM)
  3. Balanced Budget multiplier (BBM)
  4. Impact of the Marginal propensity to import (MPM)
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14
Q

is the same as the general autonomous expenditure multiplier

A

GEM

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15
Q

GEM is expressed as

A

GEM = 1/1-b= change in Y/ change in G

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16
Q

for a public policy an increase or decrease in government spending has a

A

multiplier effect on GDP

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17
Q

if G increases by $50 million with a Multiplier of 4, what does it cause GDP to do?

A

increase by $200 million

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18
Q

3 things that can cause the Multiplier effect to be reduced

A
  1. if P changes
  2. if we are in an open economy
  3. if the MTR is positive
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19
Q

2 kinds of taxes

A

induced and autonomous

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20
Q

rise and fall as income varies

A

induced taxes

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21
Q

act as automatic stabilizers of the economy

A

induced taxes

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22
Q

if income goes up then the MTR __________ and disposable income _______

A
  • rises to higher level

- is reduced

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23
Q

if income goes down MTR ____ and disposable income _____

A
  • falls to lower level

- rises

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24
Q

autonomous taxes do not vary with

A

real GDP

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25
Q

autonomous taxes are determined by

A

the Government

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26
Q

an increase in taxes decreases: (3)

A
  • disposable income
  • consumption
  • income
27
Q

decrease in Y will be _______ than the increase in taxes

A

greater

28
Q

the Autonomous Tax Multiplier is expressed as

A

-b/1-b= change in income/change in taxes

29
Q

The inverse of ATM is the Multiplier associated with

A

transfers

30
Q

are like negative taxes

A

transfers

31
Q

The Autonomous Transfer Multiplier is the negative of the

A

autonomous tax multiplier (ATM)

32
Q

government selectively reduces taxes and loses revenue

A

tax expenditures

33
Q

the amount where a change in government expenditure is matched by a change in autonomous taxes

A

Balanced Budget Multiplier (BBM)

34
Q

the BBM is expressed as

A

1/1-b = -b/1-b
or
change in Y/ change in G = change in Y/ change in T

35
Q

The Multipliers are true assuming: (3)

A
  1. fixed aggregate price level
  2. closed economy
  3. MTR is 0
36
Q

what are the 4 phases of the business cycle

A
  1. prosperity
  2. crisis
  3. depression
  4. recovery
37
Q

the BBM requires that the effect of ___ should offset the effect of ____

A

GEM

ATM

38
Q

aggregate expenditure is calculated assuming a

A

fixed aggregate price level

39
Q

at a given P, households, firms, governments, exporters and importers make their expenditure decisions and is expressed as:

A

Y=C+I+G+X-M

40
Q

for each level of P on the AE curve

A

different level of Y exists

41
Q

the higher the price the lower the

A

income as measured in real GDP

42
Q

the income effect is also referred to as

A

the wealth effect

43
Q

if prices rise, wealth

A

falls

44
Q

with declining income there is movement ____ the ADC curve

A

up

45
Q

the rising income there is movement ____ the ADC curve

A

down

46
Q

involves future prices and foreign prices

A

substitution effect

47
Q

the delay in spending when prices are expected to go down can lead to

A

deflation

48
Q

aggregate demand is determined by

A

expectations about future:

  1. income
  2. prices
  3. profit
49
Q

involves taxation and government spending including transfers to households and firms

A

fiscal policy

50
Q

if government spending goes up, aggregate demand shifts

A

up

51
Q

taxation takes what to fund government spending

A

income from households

52
Q

if taxes go down, disposable income goes ____ and aggregate demand shifts ____

A

up

up

53
Q

if taxes go up, disposable income decreases and the ADC shifts

A

down

54
Q

monetary policy involves changes in

A

money supply and interest rate

55
Q

if interest rate goes up, investment goes ___ and the ADC curve shifts _____

A

down

down

56
Q

if interest rates go down, investments go up and the ADC curve shifts

A

up

57
Q

if the quantity of money increases, households, firms, and gov. can

A

spend more

58
Q

if the quantity of money increases the ADC curve shifts

A

up

59
Q

2 principle global factors influencing domestic aggregate demand are:

A
  1. exchange rate ($Cdn)

2. foreign income (GDPf)

60
Q

if exchange rates go down, the dollar buys ____ foreign goods, and imports _____

A

less

decrease

61
Q

if exchange rates go up, the dollar buys _____ foreign goods, and imports ____

A

more

go up

62
Q

if exchange rates go down, domestic goods become ____ expensive and exports _____

A

less

increase

63
Q

decrease in imports and increase in exports cause the ADC to shift

A

up

Econ 114 (7 decks)

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