Ch16 Macroeconomics

Front 1

For US economy, the most important reason for the downward slope of the AD curve is the interest rate effect
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Back 1

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Front 2

theory of liquidity preference

Back 2

keyens's theory that the interest rate adjusts to bring money supply and money demand into balance

Front 3

analysis of interest rate summed up in 3 steps

Back 3

1)increase P makes increase money demand
2)increase money demand makes increase interest rate
3)increase interest rate implys decrease Qd of G&S

Front 4

whenever Qd of G&S changes for a given price level the AD curve shifts
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Back 4

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Front 5

federal funds rate

Back 5

the interest rate that banks chare one another for short term loans

Front 6

monetary policy can be describes either in terms of the money supply or in terms of the interest rate
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Back 6

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Front 7

mulitplier effect

Back 7

teh additional shifts in AD that result when expansionary fiscal policy increases income and thereby increases consumer spending

Front 8

investment accelerator marginal propensity to consuem (MPC)

Back 8

the fraction of extra income that a household consumes rather than saves

Front 9

govt multiplyer=

Back 9

1/(1-MPC)

Front 10

the larger the MPC is, the greater is this induced effect on consumption and the larger is the multiplier
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Back 10

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Front 11

crowding out effect

Back 11

the off set in AD that results when expansionary fiscal policy raises the interest rate and thereby reduces investment sending

Front 12

automatic stabilizers

Back 12

changes in fiscal policy that stumulate AD when the economy goes into a recession without policymakers having to take any deliberate action

Front 13

expansionary policy

Back 13

increases money supply

Front 14

contractionary policy

Back 14

decreases money supply