Chapter 16 - THE INFLUENCE OF FISCAL POLICY ON AGGREGATE DEMAND Flashcards
1
Q
What is Marginal propensity (benägenhet) to consume (MPC) ?
A
the fraction of extra income that a household consumes rather than saves.
For example, suppose that the marginal propensity to consume is ¾.
This means that for every extra dollar that a household earns, the household spends $0,75 and saves $0,25.
2
Q
What is the multiplier effect?
A
It is the additional shifts in aggregate demand that result when expansionary fiscal policy increases consumer spending.
3
Q
What is Automatic stabilizers?
A
Automatic Stabilizers are changes in fiscal policy that stimulate aggregate demand when the economy goes into a recession, without policymakers having to take any deliberate action.
