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Econ 102 > Chapter 11 > Flashcards

Chapter 11 Flashcards

1
Q

list

model assumptions

A
  • produceres are willing to supply additional output at a fixed price
  • interest rate is fixed
  • no gov spending, no taxes
  • closed economy
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2
Q

define

Disposable Income

A

Y - (T - TR)
no gov: y

t - tr is net tax payment

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3
Q

what is The Multiplier

A

1 / (1 - MPC)

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4
Q

describe

multiplier effect (chowdhury)

A

new investment in the economy causes spending > production. Firms will increase their output by the amount demanded. this will be added to the GDP

Y + Δ Y = C + I + Δ I

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5
Q

define

multiplier effect (thomas)

A

if GDP increases by some amount, then GDP is going to rise by more than that amount

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6
Q

formula for GDP and disposable income

A

Δ I + MPC x Δ I + MPC(MPC x ΔI) + MPC (MPC^2 x Δ I)…
or
1/(1 - MPC) x ΔGDP

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7
Q

define

Marginal Propensity to Consume

A

increase in consumer spending when disposablle income increases by one dollar

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8
Q

Formula for Marginal Propensity to Consume

A

Δ consumer spending / Δ disposable income

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9
Q

disposable income formula

A

consumption expenditure + savings

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10
Q

define

MPS

A

proportion of each additional $ saved

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11
Q

MPS formula

A

1 - MPC

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12
Q

The greater the savings…

hint: size of MPC

A

the larger the MPC

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13
Q

define

Consumption Function

A

an estimation of consumer spending

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14
Q

define

Consumption Function Formula

A

C = α + MPC x Yd

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15
Q

discuss

Keynesian Cross

A
  • 45 degree line, X = Y
  • above the line, Y > X
  • below the line, X > Y
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16
Q

If Y > X…

keynesian cross

A

spending > income

17
Q

if X > Y…

keynesian cross

A

savings > spending

18
Q

define

C

consumption function

A

consumer spending

19
Q

define

α

consumption spending

A

autonomous consumer spending

what amount will we always spend, even with 0 income

20
Q

define

MPC

consumption function

A

marginal propensity to consume
slope
Δc/Δyd

21
Q

define

Yd

consumption function

A

disposable income

22
Q

how to get aggregate consumption function from individuals?

A
  • add together the intercept value (α)
  • average MPC
23
Q

discuss

Income - Expenditure Model

A
  • same assumptions as usual
  • used to find AEplanned
  • Yd = AEplanned is eqm
24
Q

AEplanned = ?

A

AEplanned = C + Iplanned

(or when it crosses the 45 degree line)

25
Q

if AE > 45 degree line….

A

Iunplanned is negative, GDP increases

26
Q

if AE < 45 degree line…

A

Iunplanned is positive, producers cut production to movve back down to the eqm

27
Q

eqm (help(

A

GDP = AEplanned + Iunplanned

i unplanned will = 0

28
Q

if GDP > AEplanned…

A

Iplanned > 0
-> producers will cut/slow production to move back to the eqm

29
Q

if GDP < AEplanned…

A

Iplanned < 0
-> producers will raise production to move back to the eqm

30
Q

define

Autonomous Change in Aggregate Expenditure

A

an initial rise or fall in aggregate expenditure at a given lvl of real gdp

31
Q

list

Shifts in Aggregate Consumption Function

A

changes in expected future disposable income
- increase, function shifts up
- dec, function shifts down
changes in aggregate wealth
- increase, function up
- decrease, function down

32
Q

define

Planned Investment Spending

A

investment spending that firms intend to undertake during a given period

33
Q

list

Factors that Impact Investment Spending

A
  1. interest rate
  2. expected future lvl of real GDP
  3. current lvl of production capacity
34
Q

discuss

Interest rate

investment spending

A

negatively related - high interest leads to low I

35
Q

discuss

Expected Future Real GDP

investment spending

A
  • higher expected growth: higher lvl of planned investment
  • lower expected growth: lower planned investment

(known as the accelerator principal)

36
Q

discuss

Inventories

investment spedning

A

Inventory Investment: value of the change in total inventories held in the economy during a given period
Unplanned Inventory Investment: unintended swing in inventories due to sales

37
Q

Actual investment spending =

A

Iunplanned + Iplanned

38
Q

Y*

A

income-expenditure equilibrium GDP

39
Q

Change in Y* arising from an autonomous change in expenditure =

A

(1/1 - MPC) x ΔAE0

Econ 102 (5 decks)

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