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19 Cards in this Set

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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
in the simple keynesian model, price level is assumed to be ___ until the economy reaches its full employment or natural real GDP
constant (horizontal section then a vertical section @ natural real GDP)