Questions and Answers
Consumption, investment, government spending, exports, and imports are:
If markets throughout the global economy all have flexible and continually adjusting prices, what will occur?
Each economy will always head for its natural rate of unemployment.
____________________ will not cause a shift of the AS curve in a Keynesian framework.
Changes in output prices
According to the Keynesian framework, ________________ in __________________ may cause inflation, but not a recession.
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According to the Keynesian framework, which of the following will not help a country to get out of a recession, but may help that country reduce inflation?
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According to the Keynesian framework, ____________________________ will not help reduce inflation, but may help a country get out of a recession.
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Keynesian economics focuses on explaining why recessions and depressions occur, as well as offering a ______________________ for minimizing their effects.
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The equilibrium quantity of labor and the equilibrium wage increase when:
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The equilibrium quantity of labor decreases and the equilibrium wage increases when:
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According to the _____________________ argument, a market-oriented economy has no obvious way to implement a plan of systematic wage reductions.
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In macroeconomics, what name is given to the costs of changing prices that businesses must consider?
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If a Keynesian expenditure-output model shows that aggregate demand for both goods and labor has shifted to the left to D1, while wages remained at w0 and prices remained at P0, what will be the result?
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According to macroeconomic theory, evidence that high unemployment may be accompanied by low inflation, and low unemployment may be accompanied by high inflation is supported by the:
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In macroeconomics, a _________________ is used to show the relationship between output and the input price level.
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If a Phillips curve shows that unemployment is high and inflation is low in the economy, then that economy:
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If a Phillips curve shows that unemployment is low and inflation is high in the economy, then that economy:
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The onset of a trade deficit is most likely supported by a country's:
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Following the multiplier effect, if out of the original 100 increase in government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round, what value would be recycled in the fourth round of this cycle?
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Following the multiplier effect, if out of the original 100 of government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round, what will the value of the total aggregate expenditures be after the fourth round in the cycle is completed?
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Suppose that out of the original 100 increase in government spending, 60 will be recycled back into purchases of domestically produced goods and services. What value will be recycled in the next round in the cycle?
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Which of the following data would be analyzed to determine whether any shift in the MPI has occurred over the course of the past 5-year period?
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The equilibrium quantity of labor and the equilibrium wage level decrease when:
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The equilibrium quantity of labor increases and the equilibrium wage decreases when:
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According to the Keynesian framework, ________________________ may cause a recession, but not inflation.
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The Keynesian economic framework is based on an assumption that:
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When an economy is experiencing higher real interest rates, business firms will most likely be discouraged from investing in:
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In a Keynesian cross diagram, what name is given to the distance between an output level that is below potential GDP and the level of potential GDP?
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The economy is in a recession and the government wants to increase output. If the multiplier equals 3 and the government increases spending by 250, how much will output increase by?
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Aggregate demand is more likely to _________________ than aggregate supply in the short run.
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According to the Keynesian framework, which of the following may help a country reduce inflation, but will not help that country to get out of a recession?
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When the consumption function ordinates MPT 0.2, MPS 0.3, MPI 0.5, and MPC 0.7 are plotted on a graph, what will their values reflect?
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The sum of all the income received for contributing resources to GDP is called ___________________.
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Study Notes
Aggregate Demand Components
- Consumption, investment, government spending, exports, and imports are all components of aggregate demand.
Unemployment and Market Conditions
- Global economies with flexible prices will always trend towards their natural rate of unemployment.
Aggregate Supply in Keynesian Framework
- Changes in output prices do not cause a shift in the Aggregate Supply (AS) curve in a Keynesian framework.
Domestic Investment and Inflation
- An increase in domestic investment may lead to inflation without causing a recession.
Government Spending and Recession
- A decrease in military spending may help reduce inflation but not effectively assist a country in overcoming a recession.
Government Healthcare Spending
- Increased government spending on healthcare may aid recovery from recession without necessarily reducing inflation.
Keynesian Focus
- Keynesian economics seeks to explain the causes of recessions and provides policy prescriptions to mitigate their effects.
Labor Market Equilibrium
- A rightward shift in labor demand results in increased equilibrium quantity of labor and equilibrium wages, assuming wage flexibility.
Labor Supply and Wages
- A leftward shift in labor supply leads to decreased equilibrium quantity of labor while equilibrium wages increase, under flexible wage conditions.
Coordination Argument
- The coordination argument posits that a market-oriented economy lacks a clear mechanism for implementing systematic wage reductions.
Menu Costs
- In macroeconomics, menu costs refer to the expenses businesses incur when changing prices.
Excess Supply in Keynesian Model
- A shift left in aggregate demand resulting in constant wages and prices leads to excess supply.
Phillips Curve and Economic Conditions
- High unemployment paired with low inflation, and vice versa, supports the Keynesian Phillips curve trade-off.
Phillips Curve Definition
- The Phillips curve illustrates the relationship between output levels and input price levels.
Output and GDP Relations
- High unemployment and low inflation signify output is below potential GDP; low unemployment and high inflation indicate output exceeds potential GDP.
Trade Deficits and Economic Growth
- A country's strong economic growth is often associated with the onset of a trade deficit.
Government Spending Multiplier Effect
- The multiplier effect indicates that a $100 increase in government spending recycled yields progressively lower amounts in subsequent rounds (e.g., $33, $10.89, and $3.59).
Total Aggregate Expenditures
- Following a cycle of government spending resulting in decreased recycling values, total aggregate expenditures culminate in $147.48 after four rounds.
MPI and Economic Indicators
- Analyzing exchange rates can reveal shifts in the Marginal Propensity to Import (MPI) over a five-year span.
Impact on Labor Market
- A leftward shift in labor demand leads to decreased equilibrium quantity of labor while wages fall, given wage flexibility.
Supply Shifts and Wages
- A rightward shift in labor supply causes an increase in labor quantity but a decrease in equilibrium wage, if wages are flexible.
Economic Slowdowns and Recessions
- A major trading partner's economic slowdown can instigate a recession without inflationary consequences.
Assumptions of Keynesian Framework
- The Keynesian model is predicated on the assumption that prices and wages are sticky and do not adjust swiftly.
Interest Rates and Business Investment
- Higher real interest rates discourage businesses from investing in both tangible and intangible capital.
Recessionary Gaps
- The distance between actual output below potential GDP is known as the recessionary gap in a Keynesian cross diagram.
Government Spending and Output Increase
- In a recession, a $250 increase in government spending with a multiplier of 3 will elevate output by $750.
Aggregate Demand Dynamics
- Aggregate demand is more likely to shift significantly compared to aggregate supply in the short run.
Tax Rate Decrease Effects
- Reducing the tax rate on consumer income may lower inflation but not assist a country in exiting a recession.
Consumption Function Analysis
- The plotted values of marginal propensities (MPT, MPS, MPI, MPC) reflect a steeper consumption function due to a high marginal propensity to consume.
National Income Definition
- National income refers to the total income received for contributing resources to GDP.
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Test your knowledge on key concepts from Chapter 12 of macroeconomics. These flashcards cover essential topics like aggregate demand components and market behaviors. Enhance your understanding of macroeconomic principles crucial for economic analysis.
