Chapter 12

Question 0

If we assume we are operating on a ———- short-run aggregate supply curve, the equilibrium level of real GDP per year is completely demand determined.

Answer 0

Horizontal

Question 1

Keynesian assumptions

Answer 1

1. Businesses pay no direct taxes
2. Businesses distribute all of their profits to shareholders
3. There is no depreciation so gross private domestic investment equals net investment
4. The economy is closed– there is no foreign trade

Question 2

——— is a flow, something that occurs over time. It equals disposable income minus consumption.

Answer 2

Saving

Question 3

———– is a stock. It is accumulation resulting from saving.

Answer 3

Savings

Question 4

——— is also a flow. It includes expenditure on new machines, buildings, and equipment and changes in business inventories.

Answer 4

Investment

Question 5

The consumption function shows a relationship between planned rates of real consumption and real ——— per year.

Answer 5

Disposable income

Question 6

The saving function is the complement of the consumption function because real savings plus real ——— must equal real disposable income.

Answer 6

Consumption

Question 7

The ———– propensity to consume is equal to real consumption divided by real disposable income.

Answer 7

Average

Question 8

The ——- propensity to save is equal to real saving divided by real disposable income.

Answer 8

Average

Question 9

The ——– propensity to consume is equal to the change in planned real consumption divided by the change in real disposable income.

Answer 9

Marginal

Question 10

The ——– propensity to save is equal to the change in planned real saving divided by the change in real disposable income.

Answer 10

Marginal

Question 11

Any change in real disposable income will cause the planned rate of consumption to change. This is represented by a ———— the consumption function.

Answer 11

Movement along

Question 12

Any change in a nonincome determinant of consumption will cause a ——— the consumption function.

Answer 12

Shift in

Question 13

The planned investment schedule shows the relationship between real investment and the ——–; it slopes ———.

Answer 13

Interest rate , downward

Question 14

The non-interest-rate determinants of planned investment are ——, innovation and technology changes, and ————.

Answer 14

Expectations, business taxes

Question 15

We assume that the consumption function has an ——— part that is independent of the level of real GDP per year. It is labeled —— consumption.

Answer 15

Autonomous, autonomous

Question 16

For simplicity we assume that real investment is ——– with respect to real GDP and therefore unaffected by the level of real GDP per year.

Answer 16

Autonomous

Question 17

The ——- level of real GDP can be found where planned saving equals planned investment.

Answer 17

Equilibrium

Question 18

Whenever planned savings exceeds planned investment, there will be unplanned inventory ———- and real GDP will fall as producers cut production of goods and services.

Answer 18

Increases

Question 19

Whenever planned savings is less than planned investment, there will be unplanned inventory ———, and real GDP will rise as producers increase production of goods and services.

Answer 19

Decreases

Question 20

When we add autonomous investment, government spending and consumption function we obtain C+G+I curve which represents total ——– for a closed economy.

Answer 20

Planned expenditures

Question 21

In an —— economy, we add the foreign sector, which consists of exports minus imports, X. Total expenditures are thus represented by G+I+C+ X curve.

Answer 21

Ope

Question 22

Equilibrium GDP can be found on a graph by total planned expenditures curve with the ——— reference line.

Answer 22

45 degree

Question 23

At that level of —– real GDP per year, planned real consumption plus planned real investment plus real government expenditures plus real exports will equal real GDP.

Answer 23

Equilibrium

Question 24

Whenever total planned expenditures exceed real GDP, there will be unplanned —— in inventories.

Answer 24

Decreases

Question 25

Production of goods and services will increase, and a higher level of equilibrium real GDP will,prevail.

Answer 25

True

Question 26

Whenever total planned expenditures are less than real GDP, there will be planned ——- in inventories. Production of goods and services will decrease, and equilibrium real GDP will decrease

Answer 26

Increase

Question 27

Any change in autonomous spending shifts the expenditure curve and causes a ——– effect on equilibrium real GDP per year.

Answer 27

Multiplier

Question 28

The multiplier is equal to 1 divided by the ——– propensity to ——-

Answer 28

Marginal, save

Question 29

The smaller the marginal propensity to ——, the larger the multiplier.

Answer 29

Save