Markets were ____ self-regulating during the

Great Depression (average unemployment ___%)

1. Not

2. 18%

 In 1936, John Keynes published ____________________________,

which established Keynesian economics as a major alternative

to classical theory.

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

True of False: factors other than interest rate affect savings and investment.

If true, what factors do affect savings and investment?

1. True

2. Uncertainty, profits, expectations

Excessive savings could lead to inadequate total expenditures (overproduction, recession)

1. suppply

2. spending

The level of ______________determines the level of output

What are the components of this?

total expenditures

(consumption, investment, govt. purchases, and net exports) 

Consumption:

1.       Largest of ________________

2.       Determined primarily by _____________

1. the four types of spending (total expenditures)

2. the level of disposable income (income after taxes)

Marginal Propensity to Consume

1.       The ________of the consumption function is the marginal propensity to consume (MPC).

2.       MPC = _________________________

1. slope

2. change in consumption / change in income

1.       On the consumption function graph, a line drawn from the vertex at a

________ will represent equal amounts of consumption

and ______________.

1. 45° angle

2. disposable income

 Where the consumption function intersects the 45° angle line is where

disposable income and consumption are ____________.

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.

1. Total Expenditures

2. Total Expenditures and Real GDP.

3. Upward

In deriving a Total Expenditures curve, the following assumptions are made:

1.       

2.     

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.

Keynesian theory, equilibrium Real GDP occurs where

________________________ (total production).

Total Expenditures equals Real GDP 

If TE were _____ than Real GDP inventories would decrease,

signaling producers to _____ production.

1. greater

2. increase

If TE were ______than Real GDP, inventories would increase, signaling

producers to ______production

1. less

2. decrease

On the Total Expenditures graph, equilibrium Real GDP occurs

where the TE curve ______________ line.

intersects the 45° angle 

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.

1. Natural Real GDP (equilibrium)

2. recessionary 

3. inflationary 

A change in one of the components of ______________ will lead

to a new equilibrium Real GDP.

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

___________.

1. Real GDP

2. multiplier effect

3. multiplier.

multiplier =

change in real GDP =

initial change X multiplier

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.

1. MPC. 

2.larger larger 

3. multiplier effect

4. multiplier effect

5. decrease