Unit 3 Vocabulary Flashcards
Shows how a household’s consumer spending varies with the household’s current disposable income
Consumption function
the increase in consumer spending when disposable income rises by $1
Marginal propensity to consume (MPC)
the increase in household savings when disposable income rises
The marginal propensity to save (MPS)
the investment spending that business intend to undertake during a given period
Planned investment spending
the value of the change in inventories held in the economy during a given period., Inventory investment is unplanned when a difference between actual sales and expected sales leads to the change in inventories. Actual inventory investment is the same of planned and unplanned inventory investment.
Inventory investment
an initial rise or fall in aggregate spending that is the cause, not the result, of a series of income and spending changes
Autonomous change in aggregate spending
the ratio of the total change in real GDP caused by an autonomous change in aggregate spending to the size of that autonomous change. It indicated the total rise in real GDP that results from each $1 of an initial rise in spending.
Spending multiplier
shows the relationship between the aggregate price level and the quantity of aggregate output demanded by households, businesses, the government, and the rest of the world
Aggregate demand curve
of a change in the aggregate price level is the change in consumer spending caused by the altered purchasing power of consumers’ assets
Real wealth effect
of a change in the aggregate price level is the change in investment and consumer spending caused by altered interest rates that result from changes in the demand for money
Interest rate effect
the use of government purchases of goods and services, government transfers, or tax policy to stabilize the economy
Fiscal policy
the central bank’s use of changes in the quantity of money or the interest rate to stabilize the economy
Monetary policy
shows the relationship between the aggregate price level and the quantity of aggregate output supplied in the economy
Aggregate supply curve
the dollar amount of the wage paid
Nominal wage
are nominal wages that are slow to fall even in the face of high unemployment and slow to rise even in the face of labor shortages
Sticky wages
shows the positive relationship between the aggregate price level and the quantity of aggregate output supplied that exists in the short run, the time period when many production costs can be taken as fixed
Short-run aggregate supply curve
shows the relationship between the aggregate price level and the quantity of aggregate output supplied that would exist if all prices, including nominal wages, were fully flexible
Long-run aggregate supply curve
the level of real GDP the economy can produce if all resources are fully employed
Full-employment level of output
the quantity of aggregate output produced in the short-run macroeconomic equilibrium
Short-run equilibrium aggregate output
the aggregate supply curve and the aggregate demand curve are used together to analyze economic fluctuations
AD-AS model
is the factor by which is a change in tax collections changes real GDP
Tax multiplier
the aggregate price level in the short-run macroeconomic equilibrium
Short-run equilibrium aggregate price level
Is the level of real GDP the economy would produce if all prices, including nominal wages, were fully flexible
Potential output
an event that shifts the aggregate demand curve
Demand shock
an event that shifts the short-run aggregate supply curve
Supply shock
the factor by which a change in both so ending and taxes changes real GDP
Balanced budget multiplier
aggregate output is below potential output
Recessionary gap
when aggregate output is above potential output
Inflationary gap
the difference between actual aggregate output and potential output
Output gap
the use of government policy to reduce the severity of recessions and rein in excessively strong expansions
Stabilization policy
programs are government programs intended to protect families against economic hardship
Social insurance
increase aggregate demand
Expansionary fiscal policy
reduced aggregate demand
Contractionary fiscal policy
are taxes that don’t depend on the taxpayer’s income
Lump-sum taxes
are government spending and taxation rules that cause fiscal policy to be automatically expansionary when the economy contracts and the automatically contractionary when the economy expands
Automatic stabilizers
fiscal policy that is the result of deliberate actions by policy makers rather than rules
Discretionary fiscal policy
