Define the marginal propensity to consume (MPC) and the marginal propensity to save (MPS), and explain why MPC + MPS always equals 1
What will be an ideal response?
MPC is the fraction of additional income that is spent. MPS is the fraction of additional income that is saved. The MPC + MPS must equal 1 because additional income is either spent or saved, so the two fractions must add up to 1.
Economics
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Along an LM curve at higher income levels the transactions demand for money is __________, so the interest rate must be __________ to equate the demand to the fixed supply of money
A) higher; higher B) higher; lower C) lower; higher D) lower; lower
Economics
In the fooling model's AD/SAS/LAS diagram, short-run equilibria to the right of the LAS curve require the price level to be
A) above what workers expect. B) above what firms expect. C) below what workers expect. D) below what firms expect.
Economics