Chapter 4 vocab Flashcards
What is desired consumption?
Hypothetical consumption at levels of income other than the actual level
What is desired national saving?
Level of national saving when consumption is at its desired level
S^d = Y - C^d - G
What is dissaving?
When borrowing > current saving
How do you calculate the real interest rate?
Nominal rate - expected inflation
What is 1 + r?
Cost of current consumption in terms of consumption next year
What is consumption smoothing?
Desire to have a pattern of consumption that varies less than that of income
What is the marginal propensity to consume (MPC)?
Fraction of additional current income consumed in the current period - between 1 and 0
What is consumer sentiment?
Survey taken by University of Michigan to measure consumer confidence in future income
What is the equation of the real interest rate?
r = (1-t)i-p^e
r = expected real after-tax interest rate
t = tax rate
i = nominal interest rate
p^e = expected rate of inflation
What is depreciation?
Rate at which capital falls in value
What is investment tax credit?
Reduction in taxes due to increased investment
