Book: The Goods Market Flashcards
How des demand production and income affect each other
Production is affected by demand which is affected by income which is a affected by production
In the short run what determines output
Demand
What is synonymous to output in evonomics
Production
What does government spending not include in gdp
Government transfers such as medicare, social security payments or interest payments of government debt
What Investments are included in the gdp
Non residential investments which are the purchase by companies of non current assets and residential investments which are purchases of housing
What is another wird for net exports
Trade balance
What is inventory investment
The difference between sales and the production in a year
How is demand calculated
Z = Y = C+I+G+X-Im, consumption investment government spending and trade balance
What is a trade surplus
Export > Import
What is a trade deficit
Import > Export
How does one calculate inventory investment
Production - Sales = inventory investment
What is the main driver if consumption
Disposable income wich is the amount they have left after the government is done with them
What is this C=C(Y(d))
(+)
It means that consumption C is a function of disposable income Y(d) and that C increases when Y(d) does
What is the behavioral equation of consumption
C = c0 - c1*Y(d) , c0 is what people would consume if they had no income, c1 is ratio consumed of disposable income
What is propensity to consume
The ratio consumed of disposable income, amount not saved
What is an alternative less literal interpretation of c0 in the behavioral consumption equation
Consumption unrelated to disposable income such as access to credit
How is disposable income calculated
Y - T = income - net taxes
What are endogenous variables
Variables that depend on other variables
What are exogenous variables
Variables taken as given
What is fiscal policy
How governments choose to spend and tax
Show all equations of demand in a closed economy. Express Z with only exogenous variables
Z = C+I+G = c0 + c1(Y-T) + I + T = Y = c1Y - c1T + c0 + I + G => Y(1 - c1) = -c1*T + c0 + I + G
Z = (-c1*T + c0 + I + G)/(1-c1)
What is autonomous spending
The part of demand that does not depend on output
c0 + I + G - c1*T
When is there equalibrium in the goods market
When production is the same as demand
What is the multiplayer in the equilibrium demand equation
1/(1-c1)
What is a geometric series
It is when production increases income which creates a demand increase of c1^n for each round
Does output shift instantaneously with demand
No, consumers take time to adapt their consumption habits and firms take time to increase production
How is private savings described mathematically
Spr = Yd - C = Y-T-C
How is public savings described mathematically
Sp = T - G
How do you calculate private savings from the production equation
Y = C+I+G => Y-C-T = I+G-T = Spr => I = Spr + T -G = Spr + Spu = S
This means that Investment equals Savings in a closed economy
What is the IS relation
That investments must equal savings in the goods market
What are the two equalibriums in the goods market
Production = Demand & Investment = Savings
What is the paradox of saving
That increased saving lowers production which in turn lowers the amount that can be saved
What stands in the way of government controlling production through monetary policy
General slowness, imports and investment, expectations, inflation and debt are all side affects and variables that may affect the governments decition
