Terms : Hide Images
| 136081222 | aggregate output | The total quantity of goods and services produced (or supplied) in an economy (in a given period) This is Real Output or Real GDP (called Y) | |
| 136081223 | aggregate income | (every expenditure is received by someone as income) the total income received by all factors of production. (Y= both aggregated output and aggregated income) | |
| 136081224 | Saving | that part of income that a household does not consume (only 2 things a household can do with income!) S= Y- C | |
| 136081225 | Factors of household consumption | 1. household income 2. household wealth 3. interest rate 4. expectations | |
| 136081226 | Consumption function |  | |
| 136081227 | Marginal Propensity to Consume (MPC) | that fraction of a change in income that is consumed MPC= slope of consumption function (change in C/ change in Y) | |
| 136081228 | Marginal Propensity to Save (MPS) | that fraction of a change in income that is save MPC + MPS = 1 | |
| 136081229 | Investment | Purchse by firms of new buildings, equipment, and additions to inventories. Those all add to a firms "capital stock" | |
| 136081230 | Planned (desired) investment | Letter "I" additions to the capital stock and inventory that are planned by firms | |
| 136081231 | Actual Investment | the ACTUAL amount of investment that takes place; it includes unplanned changes in inventories | |
| 136081232 | Change in Inventory | change in inventory= production - sales | |
| 136081233 | Planned Aggregate Expenditure | the total amount the economy plans to spend in a given period. It is equal to Consumption (C) plus Planned Investment (I) AE= C+I | |
| 136081234 | Equilibrium | Planned Aggregate Expenditure (AE) is equal to Aggregate Output (Y) Y= AE or Y = C+ I | |
| 137064290 | Left of equlibrium (relationship between AE and Y) | AE > Y | |
| 137064291 | Right of equilibrium (relationship between AE and Y) | AE < Y | |
| 137064292 | "expansionary gap" | consumed more than produced inventories decrease firms increase production, move back toward equilibrium | |
| 137064293 | "contractionary gap" (recessionary) | produced more than consumed inventories increase firms decrease production | |
| 136558959 | Saving/ Investment Approach to Equilibrium | see diagram Y = C + S and AE = C + I in equilibrium Y= AE so S = I because the C's cancel out | |
| 136558960 | Multiplier | the ratio of the change in the equilibrium level of output to a change in an autonomous variable. | |
| 136558961 | Paradox of Thrift | increase in savings causes decrease in output | |
| 136558962 | 5 things that reduce the multiplier (government influence) | 1. Tax payments act as a "drag" on the economy 2. Planned Investment (I) is NOT fixed (autonomous) and depends on interest rates (reduces the multiplier) 3. Part of the expansion is likely to take the form of an increase in prices (prices are NOT fixed) 3. Part of the expansion is likely to take the form of an increase in prices (prices are NOT fixed) 4. Some spending "leaks" into foreign markets (imports) 5. If extra saving is channeled into additional investment, the "I" curve shifts up and there is no "Paradox of Thrift" effect | |
| 137064294 | How does Y change when AE changes? (4 steps) | 1.MPS change in S/ change in Y 2. in equilibrium S = I 3. Change in S = Change in I 4. MPS = change in I / change in Y Change in Y = change in I / MPS or change in I times 1/ MPS 1/ MPS = multiplier 1/ 1- MPC = multiplier | |
| 137064295 | Fiscal Policy | the government's spending and taxing policies. these are divided into 3 categories: 1. Policies on government purchases of goods and services 2. Policies on taxing 3. Policies concerning transfer payments (unemployment, social security) | |
| 137064296 | Discretionary Fiscal Policy | changes in taxes or spending that are deliberate changes in government policy (vs. changes due to change in the economy) | |
| 137064297 | Monetary Policy | The behavior of the Federal Reserve concerning the nation's money supply | |
| 137064298 | Net Taxes | Taxes paid by firms and households minus transfer payments (T) | |
| 137064299 | Disposable (After Tax) Income | Disposable Income = Total Income - Net taxes | |
| 137570423 | Consumption Function Equation (after adding taxes) | C = a + bYd or C = a + b (Y-T) | |
| 137570424 | C+ S + T = C+ I + G Leakage Variables? | S and T | |
| 137570425 | C+ S + T = C+ I + G Injection Variables? | I and G | |
| 137570426 | Governmnet Spending Multiplier | 1/ MPS (same as "simple" multiplier) Change in Y = Change in G times 1/ MPS | |
| 137570427 | Tax Multiplier | Change in Y = - (change in T * MPC)(1/ MPS) Change in Y = - change in T * (MPC/MPS) | |
| 138180920 | Balanced Budget Multiplier (definition) | simultaneous change in government spending and taxes | |
| 138180921 | Balanced Budget Multiplier (equation) | BBM = 1 | |
| 138180922 | Federal Budget | it is a political document that dispenses favors (elderly, farmers, etc.) a reflection of goals an embodiment of how the government should manage the economy | |
| 138180923 | Federal Surplus (+) or Deficit (-) | Federal government receipts - expenditures. This number could be either + or - | |
| 138180924 | Federal Debt | Total amount owed by the Federal government (running total) Some of the debt ends up being held by the Federal government itself (trust funds, Federal Reserve) | |
| 138180925 | Privately Held Federal Debt | The non-government owned debt of the U.S. government (remember some "debt" is also an "asset") | |
| 138180926 | Automatic Stabilizers | Revenue and expenditure items in the federal budget that automatically change with the state of the economy in such a way as to stabilize GDP | |
| 138180927 | Fiscal Drag | The negative effect that occurs when tax rates increase because tax payers have moved into higher income brackets during an expansion | |
| 138180928 | Full- Employment Budget | What the federal budget would be if the economy were producing at a full-employment level of output | |
| 138180929 | Structural Deficit | The deficit that remains at full-employment levels | |
| 138180930 | Cyclical Deficit | The deficit that occurs because of a downturn in the buisness cycle. |
