Term
| Marginal Propensity to spend |
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Definition
| The fraction of a change in income that is spent on consumption consumption; 1/(1-mpc) |
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Term
Marginal Propensity to Save |
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Definition
| The fraction of a change in income that is saved; 1/1-mpc |
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Term
| What is the relationship between MPC and consumption and savings? |
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Definition
| MPC is measured graphically by the slope of the consumption function. |
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Term
| What is the relationship between MPS and the saving function? |
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Definition
| The saving function is the relationship between saving and income. The savings divided by income is MPS. |
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Term
| The Non-income Determiants of Consumption |
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Definition
- Net Wealth and Consumption
- The Price Level
- The Interest Rate
- Expectations
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Term
| The Non-income Determiants of Investment |
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Definition
- Market Interest Rate
- Business Expectations
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Term
Government Purchases
- What is the government purchase function?
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Definition
| The relationship between government purchases and the economy's income. |
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Term
Non-income Determinants of Net Exports
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Definition
- U.S. Price Level
- Price levels in other countries
- interest rates here and abroad
- Foreign income levels
- exchange rate for U.S. dollar and foreign curencies.
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Term
GDP and Spending
- What happens if spending exceeds real GDP?
- What happends if GDP exceeds spending?
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Definition
- When spending exceeds real GDP you get a reccesionary gap.
- When real GDP exceeds spending you get an expansioary gap.
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Term
Simple Spending Multiplier
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Definition
Simple spending multiplier--1/(1-MPC)
- The ratio of a change in real GDP demanded to the initial change in spending that brough it about.
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Term
The effects of price level on aggregate demand
- What are the effects of price level on aggregate demand?
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Definition
- The Higher the price level the lower hte aggregate demand and vice-versa
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Term
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Definition
| A period during which some resource prices, especially those for labor, are fixed by explicit or implicit agreements. |
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Term
| Short-run aggregate supply (SRAS) curve |
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Definition
| A curve that shows a direct relationship between the actual price level and real GDP supplied in the short run, other things constant, including teh expected price level. |
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Term
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Definition
| A period during which wage contracts and resource price agreements can be renegotiated; there are no surprises about the economy's actual price level. |
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Term
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Definition
| A vertical line at the economy's potential output; aggreagate supply when there are no surprises about the price level and all the resource contracts can be renegotiated. |
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Term
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Definition
| The wage measured in dollars of constant purchasing power; the wage measured in terms of the quantity of goods and services it buys. |
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Term
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Definition
| The wage measured in dollars of a year in question; the dollar amount on a paycheck. |
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Term
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Definition
| The economy's maximum sustainable output, given the supply of resources, technology, and rules of the game; the output level when there are no surprises about the price level. |
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Term
| Natural Rate of Unemploymen |
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Definition
| The unemployment rate when the economy produces it's potential output and when cyclical unemployment is zero. |
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Term
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Definition
| The amount by which actual output in the stort run exceeds the economy's potential output. When GDP exceeds spending. |
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Term
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Definition
| The amount by which actual output in the short run falls short of the economy's potential output. When spending exceeds GDP. |
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Term
Evolution of fiscal policy from 1930s to present
- What is it?
- Automatic stabilizers
- discretionary fiscal policy
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Definition
Automatic Stabilizer- Structural freatures of government spending and taxation that reduce fluctuations on disposable income, and thus consumption, over the business cycle.
Discretionary fiscal policy- The deliberate manipulation of government purchasesm taxation, and transfer payments to promote macroeconomics goals, such as full employment, price stability, and economic growth. |
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Term
Evolution of fiscal policy from 1930s to present
- Why didn't we have it before?
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Definition
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Term
Evolution of fiscal policy from 1930s to present
- How a budget is implemented
- What are the problems with the process?
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Definition
Federal Budget- A plan for federal government outlays (including both government purchases and transfer payments) and revenues for a specific period.
The Problems
- Continuing resolutions instead of budget decisions
- Lengthy budget process
- uncrontollable budget items
- No separate capital budget
- overly detailed budget
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Term
Competing Budget Philosophies
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Definition
| Budget philosophy prior to the Great Depression; aimed at matching annual revenues with outlays, except during times of war |
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Term
Competing Budget Philosophies
- Cyclically balanced budget
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Definition
| A budget philosophy calling for budget deficits during recessions to be financed by budget surpluses during expansionary |
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Term
Competing Budget Philosophies
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Definition
| A budget philosophy using fiscal polivy to achieve the economy's potential GDP, rather than balancing budget either annually or over the business cycle. |
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Term
History of Deficit Spending
- What is the history of deficit spending?
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Definition
Federal budget has been in deficit in all but 12 years since 1930. It decreased during 1990s and turned into a surplus, however, with a recession in 2001 and other factors, it went back into 3.5% relative to GDP by 2003. |
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Term
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Definition
| The displacement of interest-sensitive private investment that occurs when higher government deficits drive up market interest rates. |
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Term
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Definition
| The potential for government spending to stimulate private investment in an otherwise dead economy. |
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Term
Circumstances surrounding 1990s Surplus
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Definition
- rising worker productivity
- growing consumer spending
- globalization of markets
- strong stock market
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Term
National Debt and Debt Held by the Public
Gross National Debt |
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Definition
| The net accumulation of federal budget deficits |
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Term
National Debt and Debt Held by the Public
Public Debt |
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Definition
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Term
Effect of Interest on National Debt
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Definition
| Interest causes the national debt to increase.?? |
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Term
| Who bears the burden of national debt |
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Definition
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