Booms and recessions (I): The Keynesian Cross

5 important questions on Booms and recessions (I): The Keynesian Cross

What is steady-state income?

The income when all components are in equilibrium and adjusted accordingly

What is a business cycle?

The fluctuations of actual income around potential income

What causes short term booms and resessions?

Excess or lack of demand
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Why is the long-run AS-curve vertical?

Because in the long run labout and capital utilizations limit the output that can be produced

What is the marginal propensity to consume?

What fraction of their income individuals want to spend on consumption. It is the c constant in C=cY

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