Term
Markets were ____ selfregulating during the
Great Depression (average unemployment ___%)


Definition


Term
In 1936, John Keynes published ____________________________,
which established Keynesian economics as a major alternative
to classical theory.


Definition
“The General Theory of Employment, Interest, and Money”



Term
True of False: factors other than interest rate affect savings and investment.
If true, what factors do affect savings and investment? 

Definition
1. True
2. Uncertainty, profits, expectations
Excessive savings could lead to inadequate total expenditures (overproduction, recession) 


Term
Classical theory: emphasizes ___________ Keynesian Theory: emphasizes _________ 

Definition


Term
The level of ______________determines the level of output
What are the components of this? 

Definition
total expenditures
(consumption, investment, govt. purchases, and net exports)



Term
Consumption:
1. Largest of ________________
2. Determined primarily by _____________


Definition
1. the four types of spending (total expenditures)
2. the level of disposable income (income after taxes) 


Term
Marginal Propensity to Consume
1. The ________of the consumption function is the marginal propensity to consume (MPC).
2. MPC = _________________________


Definition
1. slope
2. change in consumption / change in income 


Term
1. On the consumption function graph, a line drawn from the vertex at a
________ will represent equal amounts of consumption
and ______________.


Definition
1. 45° angle
2. disposable income 


Term
Where the consumption function intersects the 45° angle line is where
disposable income and consumption are ____________.


Definition


Term
According to Keynesian theory, the level of __________
determines the level of total output (Real GDP).
A Total Expenditures curve (TE) shows the relationship between
___________ and _______________
__________ sloping line, similar to the demand curve from
previous chapters.


Definition
1. Total Expenditures
2. Total Expenditures and Real GDP.
3. Upward 


Term
In deriving a Total Expenditures curve, the following assumptions are made:
1.
2.


Definition
1. Consumption is directly related to Real GDP.
2. The levels of investment, government purchases, and net exports are
all unrelated to the current level of Real GDP.



Term
Keynesian theory, equilibrium Real GDP occurs where
________________________ (total production).


Definition
Total Expenditures equals Real GDP



Term
If TE were _____ than Real GDP inventories would decrease,
signaling producers to _____ production.


Definition


Term
If TE were ______than Real GDP, inventories would increase, signaling
producers to ______production 

Definition


Term
On the Total Expenditures graph, equilibrium Real GDP occurs
where the TE curve ______________ line.


Definition


Term
Ideal Total Expenditures
The ideal level of Total Expenditures results in __________________.
If TE is less than the ideal, a ___________gap will result.
If TE is greater than the ideal, an __________ gap will result.


Definition
1. Natural Real GDP (equilibrium)
2. recessionary
3. inflationary 


Term
A change in one of the components of ______________ will lead
to a new equilibrium Real GDP.


Definition


Term
A change in one of the components of TE will lead to a multiplied change in
______________.
The ___________ occurs because the initial change in TE triggers
a chain reaction.
The size of the multiplier effect depends on a factor called the
___________.


Definition
1. Real GDP
2. multiplier effect
3. multiplier. 


Term

Definition


Term

Definition
initial change X multiplier 


Term
The size of the multiplier depends on the _____. The greater the MPC, the ______ the multiplier The larger the multiplier, the _____ the eventual change in Real GDP According to Keynesian theory, the _____________ works the same for an initial decrease in TE. The initial __________in TE would lead to a multiplied decrease in Real GDP.


Definition
1. MPC.
2.larger larger
3. multiplier effect
4. multiplier effect
5. decrease 

