Class Study Guide for Test 3

# Class Study Guide for Test 3 - Class Study Guide for Test 3...

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Class Study Guide for Test 3 Ch.10- 1. 45- degree line- origin up to the right AE Line- C+I+G+(X-M) Aggregate Output Demanded- intersection of the 45 degree line & AE line. (if the assumed real GDP is less than the given real GDP there is a reduction in inventories which would tell firms to increase production). Aggregate Output Demand relates to the point where AE equals real GDP. EXAMPLE- government purchases increase by 100, AE=.8Y+400, after this increase the aggregate output demanded will be 500. 2. Change in Aggregate Output Demanded= (Change in Investment)(Simple Spending Multiplier) 3. MPC - two points on the AE Line at some price level, (X1,Y1) & (X2, Y2), y2-y1/x2- x1=MPC 4. Spending Multiplier- 1/(1-MPC) 5. Multiplier- Change in level of real GDP/Change in Vertical Intercept of AE 6. Relationship between AE Curve and Aggregate Demand Curve- AE= MPC(Y)+b, can only shift with changes to price level

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## This note was uploaded on 10/20/2010 for the course ECON 101 taught by Professor Ohler during the Fall '08 term at Washington State University .

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Class Study Guide for Test 3 - Class Study Guide for Test 3...

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