Unit 3 Flashcards
Foreign trade effect (aggregate demand)
price level in country increase, import from other countries decrease
interest rate effect (aggregate demand)
price level increases, real quantity of money decreases
real wealth effect
price level increases, values decrease
Ad curve will shift right (increase)
Consumption:
- expectations of shortages
- increased incomes
Investment :
- rates drop gain optimism
Government carries policy:
- increase spending, money supply
- decrease in taxes
Net export increase:
- forge in income decreases, rate decreases
aggregate supply curve
total value of output that producers are willing and able to supply alternative price levels
aggregate demand t
total demand in goods/services
Marginal Propensity to consume
amount of which consumption increase of every dollar MPC = change in consumption/ change in real income
marginal property to save
MPS = change in saving / change in real income
MPC + MPS = 1
MPS = 1 - MPC
government / forge in trade are omitted: marginal property to save is the complement to MPC
spending multipler
multipler = 1/1-MPC = 1/MPS
fiscal policy
government experiences this when countering fluctuations in aggretgate expenditure with changes in payment
expansionary fiscal policy
increasing government purchases and transfers// or decreasing taxes in order to shift right and boost GDP
contractionry fiscal policy
decreasing purchases, transfer shifting the demand left lowering price level and GDP
government spending multi per
1/ 1-MPC = 1/MPS
tax multiper
- MPC/MPS its negative because tax increase leads to expenditure decreases (only when government is government spending, transfer or taxes are changed (indirect and direct of fiscal policy)
