Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
15 Cards in this Set
- Front
- Back
|
The relationship between consumption and income, other things constant
|
The Consumption Function
|
|
|
What are the Nonincome Determinants factors that could cause the entire consumption function to shift?
|
Net wealth and consumption
Price level Interest rate Expectations |
|
|
The value of all assets that households own minus any liabilities, or debts owed
|
Net Wealth
|
|
|
Difference between a movement along the consumption function and a shift of the consumption function
|
Movement along the consumption function results from a change in income
Shift of the consumption function results from a change in one of the nonincome determinants of consumption |
|
|
When price level changes, real value of dollar-denominated financial assets (bank accounts, cash) also changes
Increase in the price level reduces the purchasing power of wealth held in fixed dollar assets – households consume less and save more Decreases in the price level increase the purchasing power of wealth held in fixed assets – households consume more and save less |
Price Level
|
|
|
function isolates the relationship between the level of income in the economy and planned investment – the amount firms would like to invest, other things constant
|
Investment Function
|
|
|
A decline in the rate of interest, other things remaining constant, will reduce the cost of borrowing and increase planned investment: investment function shifts upward
|
Market Interest Rate
|
|
|
relates government purchases to the level of income in the economy, other things constant
|
Government Purchase Function
|
|
|
taxes minus transfers and are independent of income
|
Net Taxes
|
|
|
the relationship between net exports and the level of income in the economy, other things constant
|
Net Export Function
|
|
|
The amount of investment that firms plan to undertake during a year
|
Planned investment
|
|
|
The amount of investment actually undertaken; equals planned investment plus unplanned changes in inventories.
|
Actual investment
|
|
|
relationship showing, for a given price level, planned spending at each income, or real GDP; the total of C+I+ G + (X-M) at each income, or real GDP
|
Aggregate expenditure line
|
|
|
The ratio of a change in real GDP demanded to the initial change in spending that brought it about; the numerical value of the simple spending multiplier is 1(1—MPC); call “simple” because only consumption varies with income.
|
Simple spending multiplier
|
|
|
relationship between aggregate income and aggregate spending that determine, for a given price level, where the amount people plan to spend equals the amount produced.
|
income—Expenditure Model
|
