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macro > exam 2 > Flashcards

exam 2 Flashcards

1
Q

average propensity to consume (apc)

A

spending/earning
APC + APS = 1

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2
Q

average propensity to save (aps)

A

money left after spending/earnings
APC + APS = 1

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3
Q

marginal propensity to consume (MPC)

A

change in consumption/
change in income
function of income
slope in AE model

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4
Q

marginal propensity to save (MPS)

A

change in savings/
change in income

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5
Q

investment

A

investment (multiplier) + income = new income with investment
straight horizontal line as a function on income on AE graph

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6
Q

multiplier equation

A

1/(1-MPC)
how spending has ripple effects in the economy

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7
Q

Simple AE Model

A

C + I + G + NX
AE (consumption) as a function of income
AE = Y (equilibrium where C+I = AE =Y)
Consumption curve
C+I
Savings and Investment
(Net Exports, Government spending, and Taxes can be added)
investment as a function of income + savings as a function of income
equilibrium: savings = withdrawals

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8
Q

paradox of thrift

A

savings is a withdrawal from the economy, this it reduces the economy ie. the economy crashed during covid bc consumption was so reduced

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9
Q

The Wealth Effect

A

higher price level causes the purchasing power of citizens savings to reduce

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10
Q

Interest Rate Effect

A

higher price levels make it harder to save, savings fall and interest rates rise, making it harder to take loans and reduces AD

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11
Q

Aggregate Demand curve

A

C+ I + G + NX = AD Curve
output of goods and services (real GDP) demanded at different price levels
- shifts left or right according to consumer demand

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12
Q

Export Effect

A

higher price level causes goods to be more expensive, reducing exports and AD

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13
Q

disposable income

A

income - taxation

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14
Q

equilibrium

A

savings + taxation = investment + gov spending

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15
Q

Aggregate Supply Curve

A

shows the real GDP that firms will produce at varying price levels

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16
Q

Long Run Aggregate Supply

A

slope: vertical since its driven by the natural rate of output
- right shifts occurs when tech and/or labor is improved, and/or trade and globalization increase
-prices are fully flexible

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17
Q

Short Run Aggregate Supply

A
  • prices not fully flexible, incentive to produce is reduced if inputs (materials needed to produce) catch up to outputs ($ made)
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18
Q

lags

A

time it takes for an economic issue to be recognized and addressed, before which it may correct itself

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19
Q

informational lag

A

Most data that policymakers need are not available until at least one quarter after the fact

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20
Q

recognition lag

A

It takes time to recognize trends in the data

21
Q

decision lag

A

Policies must be debated and passed in Congress and signed by the president

22
Q

implementation lag

A

Once a policy becomes law, it takes time to plan,
budget, and implement the new program

23
Q

crowding out effect

A

Gov. spends money, increasing gov. debt, increasing interest rates and making loans inaccessible

24
Q

deficit

A

difference between gov. spending and revenue per period
tax revenue < spending

25
Q

surplus

A

revenue > spending

26
Q

debt

A

aggregate measure of deficit/surplus over time

27
Q

intra-government debt

A

debt financed within government agency

28
Q

public debt

A

non intra-gov debt
financed by treasury bonds (with interest)

29
Q

Balanced Budget Rule

A

budget with no deficit

30
Q

Cyclically Balanced Budget

A

deficits are offset by surplus during market boom

31
Q

Functional Finance Strategy

A

promotes economic growth and allow for tax increases

32
Q

Keynesian Economics

A

economic theory formed after the Great Depression with new understanding that prices and wages are slow to adjust and the need for government intervention in the economy

33
Q

automatic stabilizers

A

TAX REVENUES AND TRANSFER
PAYMENTS AUTOMATICALLY ADJUST
TO ECONOMIC FLUCTUATIONS
WITHOUT ACTION BY CONGRESS

34
Q

supply side fiscal policy

A

targets the supply
side to promote growth, reduce unemployment, and stabilize prices.
It is designed to shift the long-run aggregate supply curve to the right.
It does not always require a tradeoff between price levels and output.
It requires more time to work than demand-side policy.
ex: Spending on infrastructure,
education, and technology
Reducing tax rates
Expanding investment and reducing
regulations

35
Q

discretionary spending

A

spending that works through the appropriations process each year, not fixed
national defense, transportation, education, science, environmental protection

36
Q

mandatory spending

A

spending required by law, can only be changed by changing the law
social security, medicare, interest on national debt

37
Q

expansionary fiscal policy

A

reduction in taxes or increased spending to increase aggregate demand and output

38
Q

contractionary fiscal policy

A

increased taxes or decreased spending to reduce inflation

39
Q

stagflation (AS negative shock

A

AS shift left
increased unemployment
increased price levels
decreased output
decreased wages
self correcting -> decreased wages decrease price levels

40
Q

AS positive shock

A

AS curve shifts right
increased supply + decreased price level = increased output
causes inflation

41
Q

recession (AD negative shock)

A

AD curve shift left
corrected by SRAS shift right
- lower price level increases production or AD is increased through reduced taxes or gov spending

42
Q

economic boom (AD positive shock

A

AD curve shift right

43
Q

demand-pull inflation

A

high demand increases price levels, pushes economy past full employment levels

44
Q

cost-push inflation

A

negative supply shock reduces output and raises prices

45
Q

government budget constraint

A

G – T = ΔB + ΔM + ΔA
B = change in bonds held by the public

46
Q

US National Debt

A

~35 trillion, 130% of GDP
~28 trillion in public debt, 95% of GDP

47
Q

social security

A

working individuals are taxed on their income, which is then saved into a fund that makes social security payments for elderly people. the earliest someone can begin receiving payment is 62

48
Q

types of taxes

A

payroll, corporate, individual income, goods

macro (3 decks)

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