Term
| Determinants of Aggregate Demand |
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Definition
1. Changes in Consumer Spending - wealth, expectations, HH debt, taxes
2. Changes in Investment - real interest rates, expected return, business taxes
3. Government Spending
4. Foreign Sector Spending - dollar appreciates, fewer goods purchased, curve shifts left |
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Term
| Explanations of Downward Slopping Demand Curve |
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Definition
1. Wealth Effect
2. Interest Rate Effect
3. Foreign Purchases Effect |
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Term
| Determinants of Aggregate Supply |
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Definition
1. Wage Rates
2. Prices of Non-Labor Inputs
3. Productivity
4. Changes in Real and Institutional Environments |
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Term
| Average Propensity to Consume (APC) |
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Definition
| the fraction of any specific level of disposable income that is spent on consumer goods |
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Term
| Average Propensity to Save (APS) |
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Definition
| the fraction of any specific level of disposable income that is saved |
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Term
| Marginal Propensity to Consume (MPC) |
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Definition
| the fraction of a change in disposable income that is consumed |
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Term
| Marginal Propensity to Save (MPS) |
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Definition
| the fraction of a change in disposable income that is saved |
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Term
| 3 Segments of Aggregate Supply Curve |
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Definition
1. Horizontal - no growth, idle resources, high level of unemployment
2. Curved - growth and expansion of price and production, in the short-run
3. Vertical - cost pressure, pure inflation, can't produce anymore, full employment and full capacity |
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Term
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Definition
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Term
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Definition
| In a recession, firms may want to reduce wages, but will keep efficiency wages. Wages that elicit maximum work effort and thus minimize labor costs per unit of output. |
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Term
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Definition
| In a recession, firms may want to lower costs, but lowering costs creates other costs (re-printing the "menu") |
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Term
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Definition
change in output (GDP) / intial change in spending
-or-
1/MPS
-or-
1/(1-MPC) |
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Term
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Definition
Cf = a + bYd
A formula to predict how changes in income effect consumption. Explains why it's hard to maintain full employment.
CF = consumption
a = autonomous Consumption
b = MPC
YD = Disposable Income |
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Term
| Calculate Savings (2 ways) |
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Definition
S = MPS(Y) – 100
-or-
S = Y – C |
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Term
| Investment or Injection Formula |
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Definition
| ADD: Business Spending (Investment), Net Exports (Foreign Spending), Government Spending (These add up to be the same as savings at equilibrium.) |
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Term
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Definition
= Cf + I + G + Xn
= Injections + Consumption Function |
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Term
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Definition
| supply creates it's own demand (classical theory) |
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Term
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Definition
| spending is equivalent to income (or output) |
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Term
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Definition
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Term
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Definition
| Personal income less personal taxes, disposable income is available for saving or consumption |
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Term
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Definition
| Save money vs. spending more than your disposable income |
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Term
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Definition
| Only households and businesses, no government and not imports/exports |
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