Ch. 11 Spending & Output in the Short Run Flashcards

1
Q

Menu costs

A

the costs of changing prices

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2
Q

Planned Aggregate Expenditure, PAE

A

Total planned spending on final goods and services

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3
Q

Consumption function

A

The relationship between consumption spending and its determinants, in particular disposable income

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4
Q

Autonomous consumption

A

Consumption spending that is not related to the level of disposable income

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5
Q

Wealth effect

A

The tendency of changes in asset prices to affect households’ wealth and thus their consumption spending

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6
Q

Marginal propensity to consume, MPC

A

The amount by which consumption rises when disposable income rises by 1$; we assume that 0 < MPC < 1

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7
Q

Autonomous expenditure

A

The portion of planned aggregate expenditure that is independent of output

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8
Q

Induced expenditure

A

The portion of planned aggregate expenditure that depends of output Y

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9
Q

Expenditure line

A

A line showing the relationship between planned aggregate expenditure and output

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10
Q

Short-Run Equilibrium Output

A

The level of output at which output Y equals planned aggregate expenditure PAE; short run equilibrium output is the level of output that prevails during the period in which prices are predetermined

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11
Q

Income-expenditure multiplier

A

The effect of a one-unit increase in autonomous expenditure on short-run equilibrium output; i.e.- a multiplier of 5 means that a 10-unit decrease in autonomous expenditure reduces short-run equilibrium out by 50 units

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12
Q

Stabilization policies

A

Government policies that are used to affect planned aggregate expenditure, with the objective of eliminating output gaps

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13
Q

Expansionary policies

A

Government policy actions intended to increase planned spending and output

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14
Q

Contractionary policies

A

Government policy actions designed to reduce planned spending and output

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