Aggregate Demand Test

Question 1

What is the classical economics theory?

Answer 1

Self correcting, downward flexible wages and prices, and laissez-faire

Question 2

What is the theory after the Great Depression?

Answer 2

Keynesian theory

Question 3

What is the Keynesian theory?

Answer 3

Not self correcting, inflexible wages/prices, government involvement

Question 4

What are 4 assumptions of the aggregate expenditure model?

Answer 4

Closed economy
Private economy
All savings are personal saving
GDP=NI=PI=DI

Question 5

What does it mean that there is a closed economy?

Answer 5

No net exports

Question 6

What does it mean that there is a private economy?

Answer 6

No government interference

Question 7

What are your two options with your money?

Answer 7

Spend or save

Question 8

APC=

Answer 8

Consumption/ income

Question 9

APS=

Answer 9

Saving/ income

Question 10

MPC=

Answer 10

Change in consumption/change in income

Question 11

MPS=

Answer 11

Change in saving/change in income

Question 12

What is the multiplier?

Answer 12

1/MPS

Question 13

Moving along the consumption of savings schedule is caused by what?

Answer 13

Income changes

Question 14

What does an increase in wealth do to the consumption/ saving schedule?

Answer 14

C increases

S decreases

Question 15

What does change in price do to consumption and saving schedules?

Answer 15

If price goes down c increases and savings goes down and vice versa

Question 16

If there are expectations of inflation what happens?

Answer 16

There is an increase in consumption

Question 17

What does lowered debt do to consumption and saving schedule?

Answer 17

Consumption. Goes up and savings goes down

Question 18

Lowered taxes does what to the consumption and savings schedules?

Answer 18

Both go up

Question 19

What is the rule for investment demand curve?

Answer 19

A business will invest up to the point at which profit will equal interest rate

Question 20

Does changing interest rate affect the investment demand curve?

Answer 20

It doesn’t cause a shift

Question 21

What makes the aggregate demand curve downward sloping?

Answer 21

The interest rate effect, wealth effect, net export effect

Question 22

What is the interest rate effect?

Answer 22

Price increases so will interest rates

Question 23

What is the wealth effect?

Answer 23

The higher the price the less you can buy with your money

Question 24

What is the net export effect?

Answer 24

American buyers can buy more for less

Question 25

Changes in prices don’t caused shifts in

Answer 25

The aggregate demand and aggregate supply

Question 26

What factors can cause the aggregate demand to shift?

Answer 26

Consumer spending, investment spending, government spending

Question 27

What are the 3 phases of aggregate supply?

Answer 27

Recession, intermediate, and inflation

Question 28

What factors shift the aggregate supply curve?

Answer 28

Changed in resource prices, changes in labor or technology, taxes, and government regulations

Question 29

How do you calculate the multiplier from a graph?

Answer 29

Change in consumption/ change is disposable income

Question 30

What book did John Keyes write?

Answer 30

General Theory of Employment, interest, and Money

Question 31

What is the ratchet effect?

Answer 31

Prices tend to be sticky or inflexible downward; price levels don’t operate downward

Question 32

What are cussed of downward inflexible prices?

Answer 32

Wage contracts, morale, effort, and productivity, training investment, minimum wage, menu costs, and fear of price wars

Question 33

What is the economic theory before the Great Depression?

Answer 33

Classical economics theory