Ch 8

Question 1

Say’s Law

Answer 1

Supply creates its own demand

Question 1

Growth Recession

Answer 1

A period during which real GDP grows but at a rate below the long-term trend of 3 percent.

Question 2

Three reasons to explain the downward slope of the aggregate level demand curve

Answer 2

1. The Real Balances effect
2. The Foreign Trade effect
3. The Interest Rate effect

Question 3

Fiscal Policy

Answer 3

The use of government taxes and spending to alter macroeconomic outcomes.

Question 4

Monetary Policy

Answer 4

The use of money and credit controls to influence macroeconomic outcomes.

Question 5

What are the factors of Aggregate Demand

Answer 5

1. Consumption (C)
2. Investment (I)
3. Government Spending (G)
   4 Net Exports (X-M)

Question 6

Consumption

Answer 6

Expenditure by consumers on final goods and services. (Consumer expenditures account for more than two thirds of total spending.)

Question 7

Average Propensity to Consume (APC)

Answer 7

Total consumption in a given period divided by total disposable income.

Question 8

Marginal Propensity to Spend

Question 9

Marginal Propensity to Save (MPS)

Answer 9

The fraction of each additional (marginal) dollar of disposable income not spent on consumption; 1 − MPC.

Question 10

Determinants of Consumption

Answer 10

1. Income
2. Expectations
3. Wealth Effects (Change in spending when a change in value of assets)
4. Credit
5. Taxes

Question 11

autonomous consumption

Answer 11

Consumer spending not dependent on current income.

Question 12

Consumption Function

Answer 12

A mathematical relationship indicating the rate of desired consumer spending at various income levels.

Question 13

Dissaving

Answer 13

Consumption expenditure in excess of disposable income; a negative saving flow.

Question 14

Determinants of Investment Spending

Answer 14

1. Expectations
2. Interest Rates
3. Tech and Innovation

Question 15

Recessionary GDP gap

Answer 15

The amount by which equilibrium GDP falls short of full-employment GDP.

Question 16

Multiplier

Answer 16

The multiple by which an initial change in aggregate spending will alter total expenditure after an infinite number of spending cycles; 1/(1 − MPC).