Macroeconomics exam 3 Flashcards
According to Keynesian Theory
Factors other than the interest rate affect savings and investment and if investor are pessimistic about future returns, they may NOT invest more as interest rates fall
According to Keynesian Theory
excessive savings could lead to inadequate Total Expenditures
According to Keynesian theory
The economy can get stuck in a recessionary gap for an extended period
According to Keynesian theory
Spending is the driving force in the economy and the level of Total Expenditures determines the level of total output
Consumption
Is determined primarily by the level of disposable income, is directly related to Real GDP, and is the largest component of Total Expenditures
If disposable income increases from $21,000 to $27,000, and consumption increases from $15,000 to $19,000, the marginal propensity to consume is
.67
The marginal propensity to consume is
The slope of the consumption function and the change in consumption divided by the change in income
If the consumption function lies below the 45 degree angle line
Consumption is less than disposable income
The Total Expenditures curve
Consists of consumption, investment, government purchases, and net exports, AND has the same slope as the consumption function
According to Keynesian theory, if Total Expenditures is greater than the ideal level of Total Expenditures
An inflationary gap will occur
According to Keynesian theory, a change in one of the components of Total Expenditures will lead to
A multiplied change in Real GDP
If the MPC is .75 what is the Multiplier
4
If the MPC is .75, and investment increases by $90 billion, what is the resulting change in Real GDP?
$360 billion increase
Suppose the MPC is .75 and the economy has a recessionary gap of $90 billion. Which of the following would eliminate the gap?
$22.5 billion increase
When the government’s tax revenues are greater than the government’s expenditures
There is a budget surplus
Which of the following would be expansionary fiscal policy
An increase in the money supply
During an inflationary gap
Individual income tax payments will increase, acting as an automatic stabilizer and unemployment compensation payments will decrease, acting as an automatic stabilizer
Since Keynesian theory was introduced in 1936
The federal government has had budget deficits in most years
Crowding out
occurs when increases in government spending leads to decreases in private spending
The ____ lag occurs because, once a change in fiscal policy os enacted, it takes times before the new policy has its full effect on Real GDP
Impact
According to supply-side economists
Keynesian theory has led to high marginal tax rates and high marginal tax rates reduce both SRAS and LRAS
Supply-side economists
Favor lower marginal tax rates
M2 consists of
M1, small-denomination time deposits, and retail money market funds
Using money to make an exchange
Eliminates the need for a double coincidence of wants, reduces the transaction costs of making exchanges, and increases specialization and trade.