Explain why the marginal propensity to save and the marginal propensity to consume sum to 1
When we write MPC + MPS = 1, we are stating that a change in disposable income will induce a combination of consumption and savings changes that will equal 100 percent of that initial change in disposable income. This is because the Keynesian model assumes that people do two things with their disposable income, spend it or save it. What is not spent is saved.
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Suppose that we interpret N as the "effective" labor supply. A "labor-augmenting" technological improvement, when graphed in the Solow growth model, causes (Y/N) to ________ and real GDP per person to ________
A) rise, rise B) rise, fall C) fall, rise D) fall, fall E) fall, remain unchanged
Which of the following statements is correct?
a. The classical aggregate AD curve can be shifted by monetary and non-monetary factors. b. The classical AS schedule is horizontal while the Keynesian aggregate AS schedule is vertical. c. The Keynesian AD curve only shifts in response to monetary factors. d. The classical aggregate supply schedule slopes upward to the right while the Keynesian aggregate supply schedule is vertical. e. none of the above are correct.