Term
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Definition
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Term
| Aggregate Expenditure Model |
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Definition
| focuses on teh short fun relationship between total spending and real GDP. Price level is constant. |
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Term
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Definition
Consumption
Planed Investment
Government Purchases
Net Exports |
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Term
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Definition
| spending by households on goods and services |
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Term
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Definition
| planned spending by firms on capital goods |
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Term
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Definition
| spending by local, state, and federal governments on goods and services |
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Term
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Definition
| spending by foreign firms and households on goods and services produced in the U.S minus spending by U.S firms and households on foreign goods |
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Term
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Definition
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Term
| Macroeconomics Equilibrium |
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Definition
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Term
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Definition
| Total spending is higher than total production. Inventories fall. GDP rises and employment increases |
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Term
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Definition
| Total Spending is less than total production. Inventories increase. GDP falls and employment falls |
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Term
| Five most Important Variables that effect Consumption |
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Definition
1 Current disposable income
2 Household wealth
3 Expected future income
4 The Price level
5 The interest rate |
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Term
| Current disposable income and consumption |
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Definition
| as it increases so does consumption |
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Term
| Household wealth and consumption |
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Definition
| as household wealth increases so does amount of income spent on consumption |
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Term
| Does housing wealth affect consumer spending? |
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Definition
| This is hard to determine since many factors in macroeconomics rise and fall at the same time and this does not mean they are related |
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Term
| Expected Future Income and Consumption |
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Definition
| this depends on how it compares to current. If it is much higher than current then consumption will increase |
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Term
| The Price Level and Consumption |
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Definition
| if price level falls consumption increase. |
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Term
| Marginal Propensity to Consume (MPC) |
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Definition
| (change in consumption)/(change in disposable income) |
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Term
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Definition
| this tell us what percent of an increase in income will be spent on consumption |
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Term
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Definition
| Consumption + Savings + Tax |
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Term
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Definition
change in C + change in S + change in T
However we assume T is constant |
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Term
| Marginal Propensity to Save |
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Definition
| (Change in savings)/(Change in DI) |
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Term
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Definition
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Term
| Four most important variables that effect Planned Investment |
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Definition
1 Interest Rate
2 Expectation of future profitability
3 Taxes
4 Cash Flow |
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Term
| Expectations of future profitability and PI |
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Definition
| the optimism or pessimism of a firm is key to whether or not investment increase or decreases |
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Term
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Definition
| higher real interest rate results in lower investment and a lower real interest rate results in higher investment |
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Term
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Definition
| an increase in corporate income tax decreases profitability of investment. Investment tax incentives increase investments |
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Term
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Definition
| the higher the cash flow, the more money available for investment |
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Term
| Three most important variables that effect Net Exports |
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Definition
1 Price level in the US relative to price level in other countries
2 Growth rate of GDP in US relative to other countries
3 The exchange rate between the dollar and other currencies |
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Term
| Price Level in U.S and NX |
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Definition
| if inflation rate is less in US then demand for US products increases |
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Term
| Growth rate of GDP and NX |
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Definition
| When income in the US rises more slowly than incomes in other countries, net export rises. |
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Term
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Definition
| A decrease in the value of the dollar will increase exports and decrease imports. NX rises |
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Term
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Definition
| Spending that does not depnd on the level of GDP |
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Term
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Definition
| the ratio of the increase in equilibrium real GDP to the increase in autonomous expenditure |
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Term
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Definition
| occurs because an initial increase in autonomous expenditures sets off a series of increases in real GDP |
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Term
| Formula to find the multiplier |
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Definition
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Term
| Why is the multiplier formula oversimplified? |
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Definition
| it ignores effect that increases in GDP have on imports, inflation, interest rate, and individual taxes |
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Term
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Definition
| something good for the long run might not be good for the short run |
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