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MacroEcon > Aggregate Demand > Flashcards

Aggregate Demand Flashcards

1
Q

What does consumer spending consist of?

A

Spending by consumers on NEWLY produced goods and services - no residential housing.

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2
Q

What is national income?

A

before tax income
National income = GDP (DI + Net Taxes)

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3
Q

What is disposable income?

A

after tax income
DI = National income - Net Taxes (Taxes - Transfers)
DI = GDP - Net Taxes

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4
Q

Consumption spending is a function of what?

A

Disposable income DI

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5
Q

How does the slope of the consumption function vary with DI?

A

Positive, less than 1.

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6
Q

What is MPC?

A

Slope of the consumption function - change in C/change in DI

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7
Q

What is the range of MPC?

A

MPC < 1 always

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8
Q

Can MPC be >= 1?

A

No

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9
Q

How do tax cuts/transfer payments affect consumption function?

A

New C = New DI x MPC

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10
Q

How do tax cuts/transfer payments affect consumption function curve?

A

Change DI - Change C - movement ALONG curve

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11
Q

What are the factors that shift the consumption function?

A

wealth, price level, future income expectations

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12
Q

expectations of higher income in future lead to more/less consumption spending today?

A

more

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13
Q

increase in stock prices leads to higher/lower consumption spending?

A

increase in stock prices - wealthier - more consumption spending

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14
Q

increase in housing prices leads to higher/lower consumption spending?

A

increasing in housing prices - house worth more - wealthier - more consumption spending

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15
Q

increase in price level leads to higher/lower consumption spending?

A

higher price level - purchasing power falls - lower consumption spending

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16
Q

what does investment spending include?

A

anything used to produce final goods and services in next year - new physical capital, changes in business inventories; new housing, NO STOCKS

17
Q

which is the most volatile component of AD?

A

Investment spending

18
Q

Increased interest rates increase/decrease investment spending?

A

Decrease

19
Q

What factors affect investment spending?

A

Investor confidence, interest rates, supply of money in economy

20
Q

when there is less money in the economy, investment increases/decreases?

A

Less money supply - higher cost of borrowing - higher interest rates - less investment

21
Q

when Japan’s GDP rises, how does US net exports change?

A

increases - higher foreign income - purchase more US goods - more US exports

22
Q

when US GDP increases, how do US net exports change?

A

falls - US richer - purchase more goods from other countries - more imports - lower net exports

23
Q

what are the factors that cause movement along the AD curve? OR
Why is the AD curve downward sloping?

A

Changes in wealth (C), interest rate (I), and international trade (Nx) that occur due to changes in PRICE level.

24
Q

what are the factors that SHIFT the AD curve?

A

changes in C, G, I, Nx other than due to price level

25
Q

which changes to C SHIFT the AD curve?

A

increased wealth due to higher housing/stock prices, higher expected future incomes

26
Q

which changes to I SHIFT the AD curve?

A

investor confidence, interest rate changes INDEPENDENT of price level, supply of money in economy

27
Q

what is the spending multiplier?

A

$1 spending generates more than $1 GDP
total spending generated from $1 = 1/(1 - MPC)

28
Q

What is the spending generated in the first round after $x spending?

A

MPC x $x

29
Q

What is the total spending generated for $x spending?

A

(spending multiplier) ms x $x

30
Q

which changes to Nx SHIFT AD curve?

A

exchange rates between countries, GDP changes between countries

31
Q

US exports (US products consumed in other countries) are counted under what?

A

X only (since adding, don’t double count)

32
Q

US imports (foreign made goods consumed in the US) are counted under what?

A

C/I and IM, since subtracting from US consumption

33
Q

a $1 tax cut increases DI by:

A

$1

34
Q

a movement ALONG the consumption function is a result of:

A

change in DI

35
Q

when dollar gets less expensive, do imports/exports increase?

A

imports - $ less expensive - $1 = 150 yen - purchasing power of dollar falls - yen more valuable - buy foreign goods

MacroEcon (9 decks)

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