assumption of the Keynesian consumption function is that consumption depends on income‚ other things being equal. The higher the income‚ higher is the consumption‚ ceteris paribus. Keynes’ psychological law of consumption (The concept of the marginal propensity to consume). Keynes argue that when the income
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Comparisons and Contrasts Between the Textbook “Keynesian” View of the Proper Way to Reduce Unemployment and Keynes’s Own Discussion of the Trade Cycle John Maynard Keynes (June 1883 – April 1946)‚ one of the founders of modern macroeconomics‚ was a British economist who till this day is known as one of the most influential economists of his time. Keynes’s ideas greatly affected the theory and practice of modern macroeconomics and in addition enlightened the economic policies of governments. Keynes
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But every additional increase in income will be progressively less since a part of the income received will be saved. Thus we see that the income will not increase by only the initial investment but by many times more. The higher is the propensity to consume domestically produced goods and services‚ the greater is the multiplier effect. The government can influence the size of the multiplier
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demand. (iv) Explain the meaning of gross national disposable income. (v) Why is the AR curve parallel to the x axis in a perfectly competitive market? (vi) What is meant by utility? Explain how total utility can be obtained from marginal utility. (vii) Define budget. When can there be a deficit in the budget? (viii) Explain the meaning of price discrimination in monopoly market. (ix) Define cross elasticity of demand. (x) How does Central Bank use moral suasion
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zero. 3. The multiplier is greater than 1 if T = 0 and G = 0. 4. Paradox of saving occurs when the attempts by people to save more lead to a decline in output and an increase in saving in the short run. 5. When MPC (marginal propensity to consume) increases and investment decreases‚ goods market equilibrium output increases. Part II: NATIONAL ACCOUNTS (25 marks) For Part II‚ consider an artificial economy and assume the following: 1. Fill in the following table: (6 marks) year Output of Rice
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1. An unplanned increase in inventories results in A) an increase in planned investment. B) a decrease in planned investment. C) actual investment that is greater than planned investment. D) actual investment that is less than planned investment. 2. The ratio of the increase in ________ to the increase in ________ is called the multiplier. A) equilibrium nominal GDP; autonomous expenditure B) equilibrium real GDP; autonomous expenditure C) autonomous expenditure; equilibrium real GDP
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economist view. He argues that full employment could not occur in modern economic system because of saving from households. When households saves from their wages‚ the households can not afford all goods from manufactures then it lead to firms will decrease their expenses for survival doing layoff workforces or reduced any expenses.( Sheehan‚ 2009) In the other side
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two ways: s = i + (g – t) + (x – m) This shows that savings must be matched by the uses of savings‚ investments‚ government deficit‚ and net exports. It also points out the “crowd out” effect where by increased government spending will decrease private investment due to the fact that the amount of savings is fixed. The graph below shows how the aggregate demand curve changes with increase in government spending in the short term and the long term. s – (g – t) = i + (x – m)
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Econ 103 Ch 4: Page 88 (page 490 in Economics) 1. Define GDP and distinguish between a final good and an intermediate good. Provide examples. GDP is the market value of all the final goods and services produced within a country in a given time period. A final good or service is an item that is sold to the final user‚ that is‚ the final consumer‚ government‚ a firm making investment‚ or a foreign entity. An intermediate good or service is an item that is produced by one firm‚ bought
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Developing Recession with Rising Unemployment The economy as we know it today is developing a recession with rising unemployment. The US economy has experienced a decrease in real output for one quarter and leading indicators point to continued contraction in the current quarter. The unemployment rate last month was 5.8% and is expected to rise above 6% in the current quarter. With strict discipline‚ we can utilize fiscal or monetary policy tools in order to bring this nation back to an equilibrium
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