economy in the short run ( Keynesian cross

Question 1

Laissez-faire

Answer 1

this describes a free market ( gov doesnt interfere with the market) G= 0

Question 2

gdp expenditure side

Answer 2

gdp= c + I + G + NX

Question 3

laissez-faire autarky

Answer 3

no trade and no government gdp = C + I

Question 4

what does y represent

Answer 4

real gdp

Question 5

three things we think of for consumption

Answer 5

consumption depends on income, the greater the income the more people consume, when income increase only a portion of that new income will be spent consuming the rest will be saved

Question 6

desired aggregate consumption function

Answer 6

( c+I ) + MPC x y

Question 7

cause increase in autonomous consumption

Answer 7

this is caused from a increase in wealth or decrease in interest rates or expected future incomes raising.

Question 8

increase in autonomous consumption effect on graph

Answer 8

moves the ae curve up

Question 9

decrease in autonomous consumption

Answer 9

ae curve moves down

Question 10

cause decrease in autonomous consumption

Answer 10

drop in wealth or increase interest rates or expected incomes falling

Question 11

case of increase investments

Answer 11

firms see inventory selling fast, decrease interest rates, confidence of future sales increase

Question 12

increase investments effect on graph

Answer 12

ae goes up

Question 13

decrease investments effect on graph

Answer 13

ae goes down

Question 14

simple multiplier

Answer 14

1/(1-z)

Question 15

marginal propensity to consume formula

Answer 15

change in consumer spending / change in income

Question 16

what is change in households wealth assumed to

Answer 16

shift in the consumption function

Question 17

If the consumption function coincides with the 45-degree line, then we know that

Answer 17

desired saving is zero at all levels of disposable income.

Question 18

When determining the AE function for an open economy with government, it is generally assumed that as real national income increase…

Answer 18

net exports will decrease because the people of that country will consume more then foreigners

Question 19

consumption function four factors

Answer 19

disposable income wealth interest rates expectations of the future

Question 20

what is autonomous consumption

Answer 20

consumption spent on basic goods like food shelter etc

Question 21

causes for a increase in autonomous consumption

Answer 21

increase in wealth causing for higher standards of living

Question 22

change in autonomous consumption effect of AE curve

Answer 22

the AE curve shifts up if autonomous consumption increases they are positively related so if autonomous consumption goes down then the AE curve will shift down

Question 23

causes for change in investments

Answer 23

responding to changes in the market better opertunites etc

Question 24

change in investments effect on the AE curve

Answer 24

investments and AE curve are positively related so if the investments increase then the curve shifts up and if the investments decrease then the curve will shift down

Question 25

national income / real gdp

Answer 25

Y*0 = (c0 + I)/(1 – MPC) if consumption changes just change the zero and to find the

Question 26

how does the government impose tax amounts

Answer 26

it sets a tax rate

Question 27

total tax

Answer 27

tax rate times national income / real gdp

Question 28

all the possible aggregate expenditure functions

Answer 28

AE = C + I + G + NX = (c + MPC × YD) + I + G + (EX - IM) = c + MPC(1 - t)Y + I + G + (EX - mY)

Question 29

what will any change in autonomous expenditure doo to the desired aggregate expenditure graph

Answer 29

it will look like an upward shift