Study Guide – Lesson 9 (AE) - Study Guide Lesson...

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Study Guide – Lesson 9 (Aggregate Expenditures) Why was classical economic theory unable to describe what was going on during the Great Depression? Because the thought was that economies would self correct or sort themselves out. This was not happening. What new approach did Keynes and others develop in response to the Great Depression? Increase demand According to Keynes, what is the primary determinant of consumption (C) in the aggregate expenditures model? Demand What are the formulae for calculating APC, APS, MPC, and MPS? What do each of these variables tell us? APC = C/Y APS = S/Y MPC = ^C/^Y MPS = ^S/^Y What are the other determinants of consumption? Wealth; Debt; Expectations; Taxes What is the primary determinant of investment (I)? What are the other determinants of investment?
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