Keynes proposed that LOW aggregate demand is responsible for the ….
He criticized the notion that aggregate supply alone determines ____________
low income and high unemployment
national income.
The Keynesian model can be viewed as showing what causes the ….to shift.
In the short run, when the price level is fixed, shifts in the aggregate demand curve lead to changes in
aggregate demand curve
national income (Y)
The IS-LM model takes the price level as given and shows what causes …. It shows what causes _____ to shift.
income to change
AD
The IS curve (investment saving) plots the relationship between the _______ and the ______that arises in the market for ________
interest rate
level of income
goods and services
The LM curve (liquidity and money) plots the relationship between the _______ and the _______ that arises in the _______.
interest rate
level of income
money market (D &S of money)
Because the _______ influences both investment and money demand, it is the variable that links the two parts of the IS-LM model
- the ISLM determines the level of _________ in the SHORT RUN.
interest rate
national income
an economy’s total income was, in the short run, determined largely by the desire to spend by ….
- Thus, the problem during recessions and depressions, according to Keynes, was inadequate _______
households, firms, and the government.
spending.
The Keynesian cross shows how income is determined for given levels of …
- is the amount households, firms and the government spend on goods and services (GDP).
- is the amount households, firms and the government WOULD LIKE to spend on goods and services.
*The economy is in equilibrium when:
planned investment and fiscal policy
Actual expenditure
Planned expenditure
Actual Expenditure = Planned Expenditure or Y = E
How does the economy get to this equilibrium?
Inventories.
Firms experience unplanned changes in inventories, and this induces them to change production levels.
Changes in Gov spending
Increase in gov purchases/ spending; …
causing an ______ shift in planned expenditure.
- Thus, fiscal policy has a multiplied effect on ______
increases income
upward
income
The multiplier shows that the change in demand for _____(Y) will be larger than the initial change in spending.
formula:
output
1/ 1-mpc
MPC + MPS =
1
can be more than 1, when a country borrows.
