Macroeconomics Chapter 25 Flashcards

Questions and Answers

The Keynesian economic framework is based on an assumption that:

People can afford a high level of government services.

Prices and wages are sticky and do not adjust rapidly. (correct)

An increase in government spending will cause the aggregate demand curve to shift to the left.

According to the Keynesian framework, ________________________ may cause a recession, but not inflation.

a major trading partner's economic slowdown

If a Phillips curve shows that unemployment is high and inflation is low in the economy, then that economy:

Is producing at a point where output is less than potential GDP. (correct)

Is producing at a point where output is more than potential GDP.

Is producing at its equilibrium point.

Is producing at its potential GDP.

According to the Keynesian framework, in __ may cause inflation, but not a recession.

an increase; domestic investment Signup and view all the answers

If a Phillips curve shows that unemployment is low and inflation is high in the economy, then that economy:

Is producing at a point where output is more than potential GDP. Signup and view all the answers

The sum of all the income received for contributing resources to GDP is called ___________________.

national income (Y) Signup and view all the answers

Refer to the graph. At point A:

The economy has full employment. Signup and view all the answers

Refer to the graph. At point B:

Economic growth is low or even negative. Signup and view all the answers

What does consumption equal when income equals 600?

374 Signup and view all the answers

If the multiplier equals 2.5 and the government increases spending by 200, how much will output increase by?

500 Signup and view all the answers

Refer to the graph. Point C in the graph represents:

Moderate inflation and all of the above. Signup and view all the answers

Following the multiplier effect, what will the value of the total aggregate expenditures be after the fourth round?

147.48 Signup and view all the answers

Keynesian economics focuses on explaining why recessions and depressions occur, as well as offering a ______________________ for minimizing their effects.

policy prescription Signup and view all the answers

In macroeconomics, a _________________ is used to show the relationship between output and the input price level.

Phillips curve Signup and view all the answers

____________________ will not cause a shift of the AS curve in a Keynesian framework.

Changes in output prices Signup and view all the answers

What is the equilibrium level of national income for this economy?

Y=300 Signup and view all the answers

If the multiplier equals 3 and the government increases spending by 250, how much will output increase by?

750 Signup and view all the answers

Aggregate demand is more likely to _________________ than aggregate supply in the short run.

shift substantially Signup and view all the answers

Study Notes

Keynesian Economic Framework

An increase in government spending shifts the aggregate demand curve to the right, based on the assumption of price and wage stickiness.
A major trading partner's economic slowdown can trigger a recession without causing inflation.

Phillips Curve

If high unemployment coincides with low inflation, output is below potential GDP.
Low unemployment paired with high inflation indicates the economy operates above potential GDP.

National Income

National income (Y) represents the total income received for contributing resources to the GDP.

Economic Points on Graph

At full employment, economic conditions are optimal without inflationary pressures.
Low or negative economic growth reflects a contraction phase in the business cycle.

Consumption and Spending in Keynesian Framework

With specific parameters, consumption can be calculated as 374 when income is 600.
Government intervention is vital during a recession; with a multiplier of 2.5, a $200 increase in spending results in a $500 rise in output.

Keynesian Policy Insights

Keynesian economics recommends policy prescriptions to mitigate effects of recessions.
The Phillips Curve illustrates the trade-off between output and input price levels.

Aggregate Supply and Demand

Changes in output prices do not cause shifts in the aggregate supply curve within a Keynesian framework.
Aggregate demand is more prone to substantial shifts than aggregate supply in the short run.

Economic Equilibrium

Equilibrium national income is determined at a value of 300 under the given parameters.
A government expenditure increase of 250, with a multiplier of 3, yields a significant output increase of 750.

Multiplier Effect

The multiplier effect circulates through multiple rounds of spending, significantly boosting total aggregate expenditures after successive rounds.

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Description

Test your knowledge of key concepts in Chapter 25 of Macroeconomics. This quiz focuses on the Keynesian economic framework and its implications on government spending and aggregate demand. Use these flashcards to reinforce your understanding of macroeconomic principles.