Is the MPC for transitory income changes smaller or larger than the MPC for permanent income changes?
During a deflationary period, monetary policy is crippled by _____ a) the fact that the real rate of interest can never be negative. b) the fact that the nominal rate of interest can never be negative. c) the inability of the central bank to create money in that situation. d) a fall in the MPC. e) nothing, it is fiscal policy that is crippled.
B) the fact that the nominal interest rate can never be negative.
Disillusionment with the ability of fiscal policy to "fine tune" the economy came about as a result of _______ a) the failure of Congress to act quickly enough. b) the emergence of chronic deficits that became a focus of concern. c) the worry that deficits take away savings in the economy that otherwise would be available to finance capital investment. d) all of the above. e) none of the above.
D) all of the above.
If we know that Americans spend about 96% of their income on consumption, what can we say the MPC is?
We can't tell from this information.
What is the Keynesian Expenditure Model?
AD = C + I + G + X, AS = GDP, and AD = AS, so GDP = C + I + G + X
What is the equation when you substitute a consumption function into the Keynesian Expenditure Model?
GDP = [a+I+G+X]/(1-b) - T?b/(1-b), when C = a + b ? Y = a + b ? (GDP - T)
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