econ ch 9
Terms
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- These models hold that it is sometimes in the best interest of business firms to pay their employees higher-than-equilibrium wage rates
- efficiency wage models
- the relationship between consumption and disposable income
- consumption function
- the consumption function is:
-
C=Csub0+(MPC)(Ysubd)
Consumption is equal to autonomous consumption plus marginal propensity to consume (change in consumption over change in disposable income) times disposable income. - the ratio of the change in consumption to the change in disposable income
-
marginal propensity to consume
MPC - the part of consumption that is independent of disposable income
- autonomous consumption
- the ratio of the change in saving to the change in disposable income
-
marginal propensity to save
MPS - the number that is multiplied by the change in autonomous spending to obtain the overall change in total spending
- multiplier
- if the economy is operating below _____, the multiplier turns out to be the number that is multiplied by the change in autonomous spending to obtain the change in real GDP.
- natural real GDP
- this is equal to to 1 over (1-MPC)
- multiplier
- supply creates its own demand
- say's law
- to keynes, says law:
- may not hold in a money economy. more output may be produced than demanded.
- to classical economists, says law:
- holds in a money economy. all output will be demanded.
- to classical economists amount saved and interest rates are:
- directly related. savers save more at higher interest rates and save less at lower interest rates.
- to keynes, amount saved and interest rates are:
- not necessarily related. savers may not save more at higher interest rates or save less at lower interest rates. if savers have a savings goal in mind, then a higher interest rate means savers can save less and still reach their goal.
- to classical economists, investment and interest rates are:
- inversely related. businesses invest more at lower interest rates and less at higher interest rates.
- to keynes, investment and interest rates are:
- not necessarily related. if expectations are pessimistic, a lower interest rate may not stimulate additional investment.
- to classical economists, wages and prices are:
- flexible
- to keynes, wages and prices:
- may be inflexible downward