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Review For Test 3 (97% in the course

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Department
Economics
Course
ECON 2010
Professor
All Professors
Semester
Fall

Description
Review for test 3Chapter 11 6 questionsGraphs about Keynesian Cross thoroughly understand the graphWhat is autonomous consumption MPC consumption function and PAE functionoAutonomous consumptionoMPCoConsumption functionoPAE functionWhat will happen when PAE is bigger or smaller than YoWhat is incomeexpenditure multiplieroThe effect on the short run equilibrium output of a one unit increase in autonomous expenditureoThe multiplieroIf MPC is large the decrease in income will cause consumers to decrease spending by a lot so the multiplier will be largeHow to calculate the equilibriumoHow to calculate the change of Y due to change of autonomous expenditureHow to close output gapo oHow much change in the autonomous consumption part can lead to a certain change in Yo Chapter 12 7 questions Refer to the Outline 7 points Each point will be related to one question Chapter 13 8 questionsFeds Monetary Policy RuleoHow a central bank takes action in response to changes in the state of the economyoWhen inflation increases the Fed increases the real interest rateExpansionary gapReduces consumption and investment which reduce PAE and YInflation increases Y decreasesoWhen inflation falls the Fed decreases the real interest rateRecessionary gapIncreases consumption and investment which increase PAE and YInflation decreases Y increasesoMonetary policy refers to decisions about the size of the money supply and the level of interest rates1What determine the change of LRAS and why it is verticala2What determine the change of SR ASachanges in available resources and technology changes in the expected inflation rate inflation shocksbShows relationship between amount of output firms want to produce and the inflation ratecCurrent inflationexpected inflationchange in inflation caused by output gapdChanges in available resources and technologyiIncrease capacity by increasing resources available for production1More labor capital natural resources or a combination2Increase output shift right while inflation rate remains the sameiiChanges in technology1Use workers and machines more efficiently
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