Economics Chapter 6

Front 1

What is GDP?

Back 1

money that is circulated from business to household in form of wages, rents, profits

Front 2

What are reasons for change in GDP levels?

Household Savings

Back 2

Households: increasing their savings by reducing spending = GDP is decreased because less money goes back into the economy

Businesses: reduce production and forward less money to households though wages, interest, rent = reduces flow of GDP

Front 3

What are reasons for change in GDP levels?

Investment

Back 3

Increase in investment is greater than increase in savings = increase of GDP (more money back into economy)

Increase in investment less than increase in savings = decrease of GDP (less money back into economy)

Front 4

When is GDP at equilibrium?

Back 4

Levels of savings and investment are equal

Front 5

Paradox of thrift?

Back 5

If you start saving more the economy will decrease levels of income causing lower levels of saving

(by saving more, you save less)

Paradox only applied if a large amount of people start spending less

Front 6

Factors effecting level of Consumption Expenditure? (9)

Back 6

1. Disposable income or after-tax income

2. interest rates

3.wealth

4.expectations

5.psychological factors (ex. trying to stay in the loop with technology)

6.new products

7.distribution of income

8.prices

9.demographic factors

Front 7

Dissaving?

Back 7

spending is greater than disposable income

Front 8

Factors that change investment? (7)

Back 8

1. interest rate

2. innovation and change in economy

3.gov. policy and taxes

4.expectations

5.replacement

6.cost of capital goods

7.gross domestic product

Front 9

Expenditure Multiplier?

Back 9

amount by which a change in aggregate demand is multiplied in order to determine the change in GDP

Front 10

Tax Multiplier?

Back 10

amount by which any change in the level of taxation must be multiplied in order to determine the impact on GDP

Front 11

Balanced-Budget Multiplier?

Back 11

amount by which an equal increase in taxes and in government spending increases GDP

Front 12

Wealth Effect and Substitution Effect?

Back 12

explains negative relationship between price level in the economy and AD

Front 13

Alternate approach to Equilibrium GDP?

Back 13

Price level increases an individual's wealth decreases so people will spend less to save their money

Price level increases interest rates will increase and people will save more instead of spend more

Front 14

What is aggregate demand (AD) ?

Back 14

total demand for all goods and services produced in the economy over a certain period of time

Front 15

Real Gross Domestic Product? (RGDP)

Back 15

amount of goods and services produces in economy adjusted for price increases

Front 16

Aggregate Supply? (AS)

Back 16

total production of goods and services available in the economy over a certain period of time

Front 17

Full-Employment GDP?

Back 17

level of aggregate demand in the economy required to ensure that everyone who wants employment has a job

Front 18

Recessionary Gap?

Back 18

amount that aggregate demand must increase in order to bring the equilibrium level of GDP up to full-employment level

Front 19

Inflationary Gap?

Back 19

decrease in the level of aggregate demand required to bring equilibrium level of GDP down to full-employment level of GDP

Front 20

Say's Law?

Back 20

states that supply of product creates its own demand since all production creates income for households that can be spent on goods and services

Front 21

Keynesian Economi Theory?

Back 21

government take active role in the economy increasing government spending in order to support the demand for goods and services and preserve employment