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AP Economics > National Income Determination > Flashcards

National Income Determination Flashcards

0
Q

What is the marginal propensity to consume

A

The proportion of each extra dollar earned that is actually spent on consumption

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1
Q

What is the most important element in determining how much consumption there is in our economy

A

Income

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2
Q

How do you calculate the MPC

A

Change in consumption over the change in disposable income

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3
Q

What is the marginal propensity to safe

A

The proportion of each extra dollar earned that is actually saved for later use

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4
Q

How do you calculate the MPS

A

Change in saving divided by the change in income

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5
Q

What do the MPC in MPS always add up to

A

One

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6
Q

What is disposable income

A

Money after taxes and transfer payments

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7
Q

What is national income

A

Wages rent interest profits

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8
Q

What are considered the injections

A 
Consumption
Investment
Government
Exports
Transfer payments
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9
Q

What are considered the leakages

A

Savings
Imports
Taxes

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10
Q

The determinants of consumption in order of importance

A 
Changes in wealth
Taxes
Interest-rate changes
Price level changes
Expectations
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11
Q

Where is real interest rate set?

A

In the financial market

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12
Q

What type of money is investment done on?

A

Borrowed money

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13
Q

What is real interest rate?

A

The cost of borrowing

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14
Q

What does real interest rate tell us

A

If an investment will be profitable

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15
Q

What kind of slope does investment demand for money have?

A

Downward sloping

16
Q

What is elasticity?

A

To the extent at which something stretches

17
Q

What are the non-interest investment determinates

A

Current economic growth
Expectations
Technology
Tax regulatory environment

18
Q

What are the net exports determinants

A

National income between nations
Relative prices between nations
Currency exchange rates

19
Q

Describe the national income between nations

A

If national income goes up so does imports making net exports go down

If national income goes down so does imports making net exports go up

20
Q

What is a strong dollar

A

Means that when the dollars traded you get more foreign currency
Makes the net exports go down

21
Q

What is a weak dollar

A

Means when the dollars traded you get less foreign currency

Makes net exports go up

22
Q

Everything else remaining equal

A

Cetaris Paribus

AP Economics (8 decks)

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