CHAP 9 Flashcards
aggregate demand?
total quantity of output demanded at alternative prices during a particular time period, ceteris paribus
aggregate supply?
total quantity of output producers are willing and able to supply at alternative price levels during a particular time period, ceteris paribus
equilibrium
combination of price level and real output is compatible with both aggregate demand and aggregate supply
What are the four components of aggregate demand?
Consumption (C), Investment (I), Government Spending (G), and Net Exports (X-M)
Consumption?
spending by consumers on final goods and services
disposable income?
money after taxes left for consumers, personal income-personal taxes
saving?
part of disposable income not spent on current consumption
Average propensity to consume? what is its letter representation?
APC, the amount of total disposable income spent on consumer goods and services
Marginal propensity to consume? what is its letter representation?
MPC, tells us how much consumer spending will change in response to changes in disposable income
- so if for every dollar you make, you spent 80 cents of it, the MPC is 0.8 because it is 0.80 divided by 1
Marginal Propensity to save? what is its letter representation?
MPS, amount of each additional dollar of income that is used for saving
wealth effect?
change in consumer spending caused by change in the value of owned assets
- more money you get more you spend, less you get less you spend
autonomous consumption?
the minimum level of consumption or spending that must take place even if a consumer has no disposable income, such as spending for basic necessities
consumption function?
math relationship indicating the rate of desired consumer spending at various income levels
what does the consumption function tell us?
- how much consumption will be included in aggregate demand at the prevailing price level.
- how much consumption component of AD will change (shift) when incomes change
dissaving?
when current consumption is greeter than current income, meaning your dipping into savings
investment?
spending on new plants, equipment, and structures (capital) in a given time period
full employment GDP?
value of total output (real GDP) produced when we are at full employment
equilibrium GDP?
value of total output (real GD) produced at macro equilibrium
recessionary GDP gap
amount by which equilibrium GDP falls short of full-employment GDP
inflationary GDP gap
amount by which equilibrium GDP exceeds full employment GDP
cyclical unemployment?
unemployment due to lack of job opportunities
demand pull inflation?
increase in prices caused by excessive aggregate demand
business cycle
alternating periods of growth and contraction
expenditure equilibrium?
rate of output at which desired spending equals the value of output
what are some non-income things that determine consumption?
expectations, wealth effect, credit, and taxes
Aggregate demand curve will shift in response to what?
income, expectations, wealth, credit expectations, and tax policy
A downward shift of the consumption function implies what?
leftward shift of the aggregate demand curve to attempt to reach equilibrium
an upward shift of the consumption function implies what?
an increase (right shift) in aggregate demand
what determines investment aggregate demand?
expectations, interest rates, technology and innovation
why are interest rates affecting investment and spending?
lower rate of investment and consumer spending when interest rates are high, and more when they are lower ceteris paribus
when does Macro failure occur?
when the economy fails to achieve full employment and price stability
when does the consumption function shift up or down?
when autonomous influences like wealth and expectations change
When does the AD curve shift left or right?
when the consumption function shifts up or down because it is trying to reach equilibrium
