Midterm 10-17 Flashcards
Equation for savings
Saving = disposable income - consumption
How is consumption related to disposable income?
Directly (positively)
Amount by which actual consumption in any year falls short of the 45 degree line
Savings
Income level at which households plan to consume their entire incomes
Break even income
The fraction, or percentage, of total income that is consumed is the
Average propensity to consume
The fraction of total income that is saved is the
Average propensity to save
The proportion, or fraction, of any change in income consumed is
Marginal propensity to consume
The fraction of any change in income saved is
Marginal propensity to save
The dollar amount of all the assets that it owns minus the dollar amount of its liabilities
A households wealth
What is money?
Money is a medium of exchange, unit of account, and store of value
Equilibrium GDP is where:
C + Ig = GDP
Withdrawal of spending from the economy’s circular flow of income and expenditures.
Leakage (savings)
The purchases of capital goods
Injection (investment)
Multiplier equation:
Change in real GDP divided by initial change in spending
A tax of a constant amount or, more precisely, a tax yielding the same amount of tax revenue at each level of GDP.
Lump-sum tax
The amount by which aggregate expenditures at all the full-employment GDP fall short of those required to achieve the full-employment GDP.
Recessionary expenditure gap
Amount by which an economy’s aggregate expenditures at the full-employment GDP exceed those just necessary to achieve the full employment level of GDP.
Inflationary expenditure gap
A schedule or a curve that shows the amount of a nations output that buyers collectively desire to purchase at each possible price level.
Aggregate demand
A change in the price level produces a
Real-balances effect
The aggregate demand curve also slopes downward because of the
Interest-rate effect
The downward slope of the aggregate demand curve can be explained by
Real balanced effect
Interest rate effect
Foreign purchases effect
A schedule or curve that shows the amount of a nations output (real GDP) that buyers collectively desire to purchase at each possible price level
Aggregate Demand
Change in government expenditures and tax collection to promote FE, price stability and economic growth is
Discretionary fiscal policy
What does the crowding out effect do to expansionary fiscal policy
Increase the interest rate and reduce investment spending
What did the TARP do in 2008
Emergency loans from the US treasury to US financial firms
Interest rate paid on overnight loans is called
Federal funds rate
What are two reasons that people demand money
Asset and transaction purposes
