Chapter 10

Question 1

The classical view held that a market economy _______ regulate itself to avoid periods of excessive unemployment

Answer 1

Can regulate itself

Question 2

Who would be most likely to say that “people do not always save more as the interest rate rises”

Answer 2

John Keynes

Question 3

Keynes believed that saving is more responsive to changes in ________ than to changes in interest rates

Answer 3

Income

Question 4

The ratio of the change in consumption to the change in disposable income is called the

Answer 4

Marginal propensity to consume

Question 5

The MPC + MPS is equal to

Answer 5

1

Question 6

What does the term Co refer to?

Answer 6

Autonomous consumption

Question 7

The larger the marginal propensity to save the smaller the ______ and the smaller change in ___________, given in autonomous consumption

Answer 7

Multiplier, change in Real GDP

Question 8

Formula for multiplier

Answer 8

1 / 1 - MPC

Question 9

A change in autonomous spending will change Real GDP more if the aggregate supply curve is ________ than if it is _______

Answer 9

Horizontal, upward sloping

Horizontal AS curve is the full capacity of productions

Question 10

The classical economist believed ____________ determined savings, while Keynes said it was __________

Answer 10

Interest rate ; income

Question 11

What shifts the AD?

Answer 11

The multiplier

Question 12

According to Keynes, investment is driven by what?

Answer 12

Expectation of prices (income)