CH.10 Keynesian Macroeconomics & Economic Instability: A Critique of the Self-Regulating Economy Flashcards
1
Q
Efficiency Wage Models.
A
Efficiency wage models hold that it’s sometimes in the best interest of business firms to pay their employees wage rates that are higher than the equilibrium wage rate.
2
Q
What is the consumption function?
A
The relationship between consumption and disposable income is known as the consumption function.
(In the textbook, consumption is directly related to the disposable income and is positive even at zero disposable income.)
3
Q
What does the marginal propensity to consume mean?
A
The ratio of the change in consumption to the change in disposable income is referred to as the marginal propensity to consume.
