Term
| Classical relationship between savings and investment |
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Definition
| Savings and investment are functions of interest |
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Term
| Savings is a positive function of: (keynes) |
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Definition
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Term
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Definition
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Term
| Three regions of aggregate supply graph |
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Definition
1)Keynesian region 2)Intermediate region 3)Classical region |
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Term
| First fundamental classical assumption |
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Definition
| competition exists in all markets creating flexible prices and wages (including the labor market) |
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Term
| Second classical fundamental assumption |
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Definition
| Savings and investment are functions of interest |
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Term
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Definition
| Savings (s) + Consumption (c) |
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Term
| Average propensity to consume (APC)--definition |
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Definition
| the part of the income spent on consumption at each level of income |
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Term
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Definition
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Term
| Marginal Propensity to Consume (MPC)--definition |
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Definition
| The proportion of change in income that is translated into change in consumption |
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Term
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Definition
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Term
| The relationship between income and savings is |
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Definition
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Term
| Average Propensity to Save (APS)--definition |
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Definition
| The proportion of income that is saved |
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Term
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Definition
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Term
| Marginal Propensity to Save (MPS)--definition |
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Definition
| proportion of a change in income that is devoted to a change in savings |
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Term
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Definition
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Term
| The slope of the savings function equals: |
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Definition
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Term
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Definition
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Term
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Definition
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Term
| when the consumption function shifts upwards the savings function shifts |
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Definition
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Term
| Equillibrium in a savings function occurs when |
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Definition
| when planned savings equals planned investments |
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Term
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Definition
| the difference between full employment output and equillibrium output |
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Term
| Multiplier (K)--definition |
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Definition
| the ratio between the permanent change in income and the change in investment |
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Term
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Definition
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Term
| Recessionary Gap (formula) |
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Definition
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Term
| Inflationary Gap (Definition) |
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Definition
| when FE output exceeds equillibrium |
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Term
| Inflationary Gap (formula) |
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Definition
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Term
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Definition
| When gov't expenditures (G) exceeds tax revenues (T) |
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Term
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Definition
| when tax revenue (T) exceeds gov't expenditures (G) |
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Term
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Definition
| the positive relationship between income (independent variable) and tax revenue (dependent variable) |
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Term
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Definition
| when proportion of taxes paid rises with income |
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Term
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Definition
| when proportion taxes paid declines as income increases |
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Term
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Definition
| when proportion of taxes paid remains constant as income rises |
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Term
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Definition
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Term
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Definition
| time elapsed between the emergence of a problem and the recognition of the problem by policy makers |
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Term
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Definition
| time elapsed between recognition and action |
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Term
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Definition
| the time elapsed between action and its effect on the economy (6-9 months) |
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Term
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Definition
| certain variables that predict the course of the economy |
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Term
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Definition
| when gov't finances deficits by borrowing (selling bonds) interest rates rise, reducing private spending (consumers and investors are crowded out of the market) |
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Term
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Definition
| a political philosophy which says the main function of the federal budget is to stabilize the economy regardless of the size of the imbalance |
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Term
| balanced-budget advocates |
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Definition
| conservatives who advocate balancing the budget every year regardless of the cost of doing so |
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Term
| balancing the budget over the cycle (definition) |
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Definition
| deficits in recessions years should roughly equal surpluses in boom years |
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Term
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Definition
| money which has value by gov't decree |
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Term
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Definition
| the value of money is determined by the amount of goods and services it can buy |
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Term
| fractional reserve system |
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Definition
| when banks keep on reserve only a fraction of the deposits they owe |
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Term
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Definition
| the percentage of deposits a bank is required to keep at all times |
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Term
| Federal Deposit Insurance Corporation (FDIC) |
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Definition
| a gov't agency that insures each checking account up to $100,000 |
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Term
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Definition
| a T-account which shows what the bank owns (assets) and owes (liabilities) |
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Term
| Reserve ratio (definition) |
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Definition
| the ratio bewteen legal reserves and demand deposits liabilities |
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Term
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Definition
| (Deposit with FRB) / (demand deposit liabilities) = RR |
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Term
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Definition
| the amount of reserves the bank is required to hold |
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Term
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Definition
| reserves held over and above the amount required to satisfy the legal-minimum reserve requirement |
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Term
| Deposit multiplier (definition) |
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Definition
| the number by which excess reserves are multiplied to obtain total demand deposits that can be created |
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Term
| deposit multiplier (formula) |
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Definition
| 1 / (required reserve ratio) |
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Term
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Definition
| currency + checking accounts + negotiated orders of withrdawal |
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Term
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Definition
| M1 + savings deposits + small certificates of deposit |
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Term
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Definition
| M2 + large denomination time deposits |
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Term
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Definition
| the ease and speed at which an asset can be converted into cash without a loss |
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Term
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Definition
| a loss on the sale of assets as their prices changed since date of purchase |
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Term
| objective of monetary policy |
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Definition
| stabilize the economy by changing the rate of growth in money supply |
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Term
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Definition
| interest rate the fed charges to commercial banks |
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Term
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Definition
| the rate commercial banks charge other banks for overnight loans |
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Term
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Definition
| the rate charged by large banks to large corporations |
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Term
| interest rate structure (three things) |
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Definition
interest rates vary according to: 1) degree of risk 2) time length of loan 3) tax exempt status of earnings |
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Term
| Quantitative Control (Definition) |
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Definition
| change the quantity of money or its growth rate |
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Term
| quantitative controls (examples) |
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Definition
1) change in reserve requirements 2) change in discount rate 3) open market operations (sales and purchase of gov't bond by the fed) |
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Term
| qualitative control (definition) |
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Definition
| when a government imposes restrictions on certain segments of the market |
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Term
| qualitative control (examples) |
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Definition
1) impose minimum down payments 2) limitations on credit card use |
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Term
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Definition
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Term
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Definition
| increases debt burden on debtors and reduces real interest and real wages |
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Term
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Definition
| supply creates its own demand |
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