Unit Three Quiz 3.1-3.4 Flashcards
Demand
The ability and willingness to pay for a good or service
Inverse relationship
Shifters of demand
Tastes/preferences, # of consumers, price of related goods, income, future expectations
Supply
Different quantities of a good that sellers are willing and able to sell/produce at different prices
direct relationship
Shifters
of producers, availability/price of resources, government action, texh, expectations of future profit
Aggregate Demand
All the goods and services that buyers are willing and able to purchase at different price levels
Aggregate demand shifters
Consumers, businesses, government, and foreign countries
Wealth Effect
Higher price levels reduce the purchasing power of money
Interest Rates Effect
When the price level increases, lenders need to charge higher interest rates to get a REAL return on their loans, higher interest rates discourage consumer spending and business investment
Foreign trade
When U.S. price levels increase, foreign buyers purchase fewer US goods and americans buy more foreign goods. Exports fall and imports rise:gdp falls
Multiplier Effect
Shows how spending is magnified in the economy
Govt spending becomes income for consumers
Propensity
An inclination or natural tendency to become in a particular way
MPC
How much people consume rather than save when there’s a change in disposable income
change in consumption over
change in disposable income
MPS
How much people save rather than consume when there’s a change in disposable income
change in savings over
change in disposable income
Spending multiplier
1/MPS
1/1-MPC
Total change in GDP (spending)
Multiplier X initial change in spending
Simple tax multiplier
MPC/MPS
Total change in GDP (taxes)
Tax multiplier X initial change in taxes
Aggregate Supply
The amount of goods and services that firms will produce in an economy at different price levels. The supply for ever from all firms
Shifters (short run supply)
Resources
Actions
Production
