Chapter 4 Flashcards
Disposable income
Income remaining after the payment of taxes
Consumption function
A relationship that shows the determinants of consumption; for example, a relationship between consumption and disposable income, C = C(Y-T)
Interest rate
The market price at which resources are transferred between the present and the future; the return to saving and the cost of borrowing
Nominal interest rate
The return to saving and the cost of borrowing without adjustment for inflation
Real interest rate
The return to saving and the cost of borrowing after adjustment for inflation
National saving
A nation’s income minus consumption and government purchases; the sum of private saving and public saving
Private saving
Disposable income minus consumption
Public saving
Government receipts minus government spending; the budget surplus
Loanable funds
The flow of resources available to finance capital accumulation
Crowding out
The reduction in investment that results when expansionary fiscal policy raises the interest rate
What fiscal policies can affect savings?
Increases in government purchases
Decreases in taxes
When does the demand for goods and services equal supply?
At the equilibrium interest rate
What can cause changes in investment demand?
Technological innovation
Government encouragement/discouragement through tax laws
