AS/AD
Classical VS Keynes
Multipliers & Calculations
More Models Please
Miscellaneous
100
An increase in labor productivity will have this effect on the AS/AD graph
What is shift the AS line to the right.
100
According to John M. Keynes, what is the government's role in the economy during troubling times?
What is active involvement through manipulation of spending and taxes.
100
If marginal propensity to consume is 0.8, what is the largest total increase in Real GDP that can result from $500 of new spending?
What is $2,500
100
What relationship exists between Price Level and Real GDP? (This is why the AD curve is downward sloping)
Inverse
100
What does MPC stand for?
What is Marginal Propensity to Consume.
200
If the business cycle is in its expansion phase, what would we most likely see change on the AS/AD graph?
What is an AD shift to the right
200
According to John M Keynes, increased government spending during a recession would have what effect on price levels and Real GDP?
What is no effect on price levels and an increase in Real GDP
200
The tax multiplier increases in magnitude when:
C. The MPC increases
(A: The MPS Increases)
(B: The spending multiplier falls)
(D: Gov't spending increases)
(E: Taxes increase)
200
Correctly draw and label the business cycle. Include the full employment line, recessionary gap (Negative output gap), and Inflationary gap (Positive output gap).
200
Why is the tax multiplier always one less than the spending multiplier?
People don't spend all of the tax savings, they will save some.
300
An increase in labor productivity would most likely cause Real GDP and price levels to change in what ways?
RGDP to increase and price levels to decrease.
300
What is the classical economist explanation for how the economy will recover from a recession?
What is it will self correct (Government doesn't need to get involved) ...over a long period of time the cost of resources, including labor, will reduce allowing Aggregate supply to shift right and get back to the LRAS at full employment.
300
With the budget initially in balance, suppose that the federal government increases spending by $20 billion. The increase in spending is financed by a $20 billion tax increase. The MPC is .75. What will be the impact on Real GDP?
The Real GDP will increase by $20 billion.
300
What are the shifters of AD?
C+I+G+(Xn)
300
If price levels increased. How would that be reflected in the AS model?
What is upward movement along the curve.
400
The LRAS curve rarely shifts, but if it did, name one reason why.
What is 1. Get more resources permanently, 2. Improve human capital through training 3. Improved technology to be more efficient.
400
Draw the AS curve showing the Keynesian Range, Intermediate Range, and Classical Range.
400
If Maria's disposable income increases from $600 to $650 and her level of personal consumption expenditures increases from $480 to $520, her marginal propensity to save must be?
0.20
400
What does this economy have in the short run? 
What is a Recessionary Gap
400
What economic theory has the Multiplier effect?
Keynesian
500
An increase in personal income taxes will most likely result in what changes in Real GDP and price levels in the short run
What is decrease in RGDP and a decrease in Price Levels.
500
According to Keynesian analysis, if government expenditures and taxes are increased by the same amount, what will happen to Aggregate Demand and the Real GDP?
What is AD will shift right and Real GDP will increase.
500
If the tax multiplier is -4 and government spending increased by $20 billion, what will be the impact on Real GDP based on the spending multiplier?
What is $100 billion.
500
Which point is showing an inflationary gap?
What is Z? (Why: because it has moved ahead of the LRAS curve. (Actual GDPr is ahead of potential Yf)
500
What is long term negative supply shock called?
What is Stagflation