Chapter 11 pt A & Math

Question 1

Types of Spending

Answer 1

autonomous - dependent on income
induced - doesn’t depend on income

Question 2

Marginal Propensity to Consume (MPC)

Answer 2

fraction of a change in disposable income spent on consumption
b = MPC = Slope

Question 3

Marginal Propensity to Save (MPS)

Answer 3

fraction of a change in disposable income spent on savings

Question 4

MPS + MPC relationship

Answer 4

MPC + MPS = 1
MPC = 1 - MPS
MPS = 1 - MPC

Question 5

Autonomous vs Inducted Expenditure

Answer 5

autonomous does NOT depend on income
Induced DOES depend on income

Question 6

The Multiplier

Answer 6

-the amount a change in autonomous expenditure is multiplied to determine change in equilibrium expenditure & Real GDP
- > 1 because induced expenditure increases

Question 7

3 fiscal policy multipliers

Answer 7

government spending multipliers
autonomous tax multiplier
balance budget multiplier

Question 8

Government Spending Multiplier

Answer 8

change in Real GDP that happens due to change in GOV spending

Question 9

Autonomous Tax Multiplier

Answer 9

change in Real GDP from change in Autonomous taxes