Keynesian AE/Y Model (Closed Economy) Flashcards
1
Q
What is the formula for equilibrium output?
A
Y = C + I + G (in closed economy).
2
Q
What determines the size of the multiplier?
A
1 / (1 - MPC); higher MPC → larger multiplier effect.
3
Q
How does government spending affect equilibrium output?
A
Increases AE, shifts AE curve upward → higher output via multiplier.
4
Q
A
