Aggregate Expenditure and The multiplier Flashcards

1
Q

What does the Multiplier do

A

Influences AE by a fall in investment making a magnified effect on output

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Whats the formula for AE

A

AE=Y=C+I
Where Y is income, C is consumption and I is investment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What’s the formula for consumption

A

C =a+bY

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Through combining the formulas for AE and C what is the formula for the multiplier

A

Multiplier = 1/1-MPC
MPC is the slope of the consumption function

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the tax function and what do the components represent

A

T=t0+tY
Where t0 denotes autonomous taxes not related to income such as VAT
t denotes the marginal propensity to tax given by the change in T/change in Y

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the formula for government budget deficit and surplus

A

Deficit = G-T
Surplus = T-G

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

When including G as well what is the formula for AE and what is the multiplier

A

AE=Y=C+I+G
The Multiplier = 1/1-b(1-t)
Where t is the MPT and b is the MPC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is fiscal policy and what example can be used with Keynes

A

Fiscal policy is discretionary changes in G and T
Keynes suggested that increasing G could get an economy out of recession

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are the limitations of fiscal policy

A

Time lags means that swift policy changes are difficult
Forecasting accuracy is not reliable
Public investment is irreversable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly