unit 3 vocab

Question 1

Marginal Propensity to Consume

Answer 1

the proportion of an increase in income that gets spent on consumption

Question 2

Marginal Propensity to Save

Answer 2

the proportion of an aggregate raise in income that a consumer saves rather than spends

Question 3

Autonomous Change in Aggregate Spending

Answer 3

a chain reaction in which the total change in real GDP is equal to the multiplier times the initial change in aggregate spending

Question 4

Multiplier

Answer 4

shows what impact a change in autonomous spending will have on total spending and aggregate demand in the economy

Question 5

Consumption Function

Answer 5

a linear relationship showing how increases in disposable income cause increases in consumption

Question 6

Aggregate Consumer-Spending

Answer 6

the sum of all spending from four sectors of the economy

Question 7

Aggregate Consumption Function

Answer 7

the functional relationship between total consumption and gross national income

Question 8

Planned Investment Spending

Answer 8

the amount of money firms plan to invest during a period

Question 9

Inventories

Answer 9

the products that have been made, but not yet sold

Question 10

Inventory Investment

Answer 10

a measure of the value of the change in the physical volume of the inventories

Question 11

Unplanned Inventory Investment

Answer 11

unplanned changes in inventories, which occur when actual sales are more or less than businesses expected

Question 12

Actual Investment Spending

Answer 12

The sum of planned investment spending and unplanned inventory investment

Question 13

Aggregate Demand Curve

Answer 13

illustrates the relationship between the price level and all of the spending that households, businesses, the government, and other countries are willing to do at each price level

Question 14

Wealth Effect of a Change in the Aggregate Price level

Answer 14

what occurs when a change in the price level leads to a change in consumer spending

Question 15

Interest rate effect of a change in the aggregate price level

Answer 15

movement along the Aggregate Demand curve due to change in Price Level

Question 16

fiscal policy

Answer 16

taxing and spending by the government

Question 17

monetary policy

Answer 17

the use of the money supply to influence macroeconomic aggregates, such as output, inflation, and unemployment

Question 18

aggregate supply curve

Answer 18

shows the positive relationship between price level and real GDP in the short run

Question 19

nominal wage

Answer 19

the pay rate or amount of salary workers are paid

Question 20

sticky wages

Answer 20

when workers’ earnings don’t adjust quickly to changes in labor market conditions

Question 21

short-run aggregate supply curve

Answer 21

as the price level increases and you move along the SRAS, the amount of real GDP that will be produced in an economy increases

Question 22

long-run aggregate supply curve

Answer 22

shows the relationship between price level and real GDP that would be supplied if all prices, including nominal wages, were fully flexible

Question 23

potential output

Answer 23

what can be produced if the economy were operating at maximum sustainable employment, where unemployment is at its natural rate

Question 24

ad-as model

Answer 24

explains short-run and long-run economic changes through the relationship of aggregate demand (AD) and aggregate supply (AS) in a diagram

Question 25

short-run macroeconomic equilibrium

Answer 25

when the quantity of aggregate output supplied is equal to the quantity of aggregate output demanded

Question 26

short-run equilibrium aggregate output

Answer 26

when the aggregate amount of output demanded is equal to the aggregate amount of output supplied

Question 27

short-run equilibrium aggregate price level

Answer 27

the intersection of the aggregate demand and the short-run aggregate supply curves

Question 28

demand shock

Answer 28

any event that shifts the aggregate demand curve

Question 29

supply shock

Answer 29

an unexpected event that changes the supply of a product or commodity, resulting in a sudden change in price

Question 30

stagflation

Answer 30

a period of rising inflation but falling output and rising unemployment

Question 31

long-run macroeconomic equilibrium

Answer 31

when the current output is equal to potential output

Question 32

recessionary gap

Answer 32

the difference between actual and potential production in an economy, with the actual being lower than the potential

Question 33

inflationary gap

Answer 33

the difference between actual and potential production in an economy, with the actual being higher than the potential

Question 34

output gap

Answer 34

the difference between the actual output of an economy and the maximum potential output of an economy

Question 35

self correcting

Answer 35

the economy fixes imbalances and returns to its long-term equilibrium without any government intervention

Question 36

stabilization policy

Answer 36

tactics that a government implements in order to achieve its goals pertaining to economic stability

Question 37

social insurance

Answer 37

a set of government-provided programs meant to shield people from financial struggles

Question 38

expansionary fiscal policy

Answer 38

policies enacted by a government that often increases or decreases the money supply to make changes to the economy

Question 39

contractionary fiscal policy

Answer 39

the use of fiscal policy to contract the economy by decreasing aggregate demand

Question 40

lump-sum taxes

Answer 40

taxes that do not depend on the taxpayer’s income

Question 41

automatic stabilizers

Answer 41

any part of the government budget that offsets fluctuations in aggregate demand

Question 42

discretionary fiscal policy

Answer 42

fiscal policy that requires an action by a government to occur