Be familiar with the following terms, definitions, and concepts: Keynesian Revol

Question

Be familiar with the following terms, definitions, and concepts: Keynesian Revolution/Keynesian AS Curve Keynesian policy options for alleviating recession Fiscal Policy Multiplier Effect Marginal Propensity to Consume (MPC) Money--definition of Functions of money US money supply--composition of Banks as financial intermediaries Fractional Reserve Banking System Bank reserves Deposit Insurance Federal Deposit Insurance Corporation (FDIC) Required Reserves (RR) Minimum Reserve Ratio (MRR) Excess reserves (XR) Reserve deficiency Bank's balance sheet: assets & liabilities Deposit Expansion Multiplier (DEM) Monetary Policy Instruments of Monetary Policy-discount borrowing, federal funds, MMR, open market operations, etc.

Explanation / Answer

The Keynesian AS curve assumes that prices and wages are fixed until full employment is reached. Over the ‘Keynesian range’ there is spare capacity in the economy, the price level is stable, and real output can expand as a result of increases in AD without any inflationary pressure.

Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy. It is the sister strategy to monetary policy through which a central bank influences a nation's money supply.

The multiplier effect refers to the increase in final income arising from any new injection of spending. The size of the multiplier depends upon household's marginal decisions to spend, called the marginal propensity to consume (mpc), or to save, called the marginal propensity to save (mps).

The marginal propensity to consume (MPC) is a metric that quantifies induced consumption, the concept that the increase in personal consumer spending (consumption) occurs with an increase in disposable income (income after taxes and transfers).

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