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11 Cards in this Set
- Front
- Back
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private closed economy
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country does not allow external economics to affect domestic economic practices
-underdeveloped economy with citizens who cannont rise above a certain lifestyle -similar to command economy |
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consumption spending
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income increases
consumption increases but not as quickly income inc. savings inc. |
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investment spending
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unstable
varies directy with disposable income and real gdp affects demand and supply side |
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Private Open Economy
GDP=C+I+G+Xn Xn |
allows net exports
net exports create production, employment, and income can be pos or neg |
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Equilibrium
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AD and AS are equal
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AD > AS
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inventories decline
orders to manufactures increase and prod increases |
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AD < AS
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inventories rise
disequilibrium prod exceeds sales cut back orders to manufact. |
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Aggregate Demand
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Real GDP desired at each price level
inverse relationship --total value of real GDP that all sectors of the economy are willing to purchase at various price levels |
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Real Balance Effect
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change in purchasing power on the quantity of real GDP that you are willing to buy
dec in price level inc in quantity of real $ |
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interest rate effect
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IR inc. Consumption dec
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foreign purchases
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inp inc exports dec
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