Chapter 9 Flashcards
T or F At the equilibrium level of real GDP, the total value of goods and services produced (aggregate output and income, Y) is precisely equal to the total spending for these goods and services (aggregate expenditures, AE)
True
what is an aggregate expenditures model?
the model that determines the equilibrium level of real GDP b the intersection of the aggregate expenditures and aggregate output (and income) curves
what is the difference between the aggregate expenditures in Keynesian economics and the classical view?
aggregate expenditures in Keynesian economics pull aggregate output either higher or lower toward equilibrium in the economy, as opposed to the classical view that aggregate output generates and equal amount of aggregate spending
what is a spending multiplier (SM)?
the ratio of the change in real GDP to an initial change in any component of aggregate expenditures, including consumption, investment, government spending, and net exports. As a formula, the spending multiplier equals 1(1 - MPC) or 1/MPS
what is the equation for spending multiplier?
spending multiplier = change in equilibrium real GDP / initial change in aggregate expenditures
what creates a chain reaction of further spending, which causes a greater cumulative change in aggregate expenditures?
any initial change in spending by the government, households, or firms
what is a recessionary gap?
the amount by which the aggregate expenditures curve must be increased to achieve full employment equilibrium
what is a tax multiplier?
the change in aggregate expenditures (total spending) resulting from an initial change in taxes. As a formula, the tax multiplier equals 1 - spending multiplier
what is an inflationary gap?
the amount by which the aggregate expenditures curve must be decreased must be decreased to achieve full employment equilibrium
