Chapter 6 Flashcards
1
Q
Closed Economy
A
The country is not trading with other countries.
2
Q
Production Function
A
Y=F(K,L)
Assume F,K and L are fixed -> Y is fixed!
3
Q
Demand Side of a Closed Economy
A
Y = C + I +G
4
Q
Disposable Income
A
Total Income (Y) - Total Taxes (T)
Disposable Income is divided into consumption and savings.
5
Q
Total Taxes (T)
A
Taxes - Transfer Payments
6
Q
Marginal Propensity to Consume (MPC)
A
Slope of the consumption function.
Increase in C caused by a one-unit increase in disposable income.
