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17 Cards in this Set

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Aggregate Supply (AS) curve
shows for each given price level, the quantity of output firms are willing to supply
Aggregate Demand (AD) curve
shows for each given price level, the level of output at which the goods market and money markets are in equilibrium
Real GDP
measures changes in physical output in the economy between different time periods by valuing all goods produced in the time periods @ the same prices
Nominal GDP
measures the value of output in prices of the period
Name the 3 main prices indexes
GDP deflator
Consumer Price Index
Producer Price Index
Nominal Interest Rate
Expresses payment in current dollars on a loan or other investment
Real Interest Rate
return on investment measured in dollars of constant value - equal to the difference b/w nominal and the rate of inflation
AD
Total amount of goods demanded in the economcy
If output > AD then...
there is an unplanned inventory investment - as excess inventory grows, firms cut back production
Marginal propensity to consume (little c/slope)
increase in consumption for each $1 increase in disposable income
If demand (AD) > output...
Income below Y0 - inventory is declining so production increases; IU<0
Contractionary policies
reduce spending; raise interest rates
Expansionary policies
designed to stimulate spending
endogenous variables
(dependent variables) the particular value is determined w/in the economy by economic forces or value is determined w/in the model
Abar =
=
Is the change in income greater than or less than the change in government expenditure?
Given cbar>0 and 0<c<1, the slope of the AD schedule is less than one. An autonomous change in expenditure such as an increase in govt expenditure will result in an even greater change in income. This property is known as the multiplier.
The 45 degree line (AD=Y) represents
the locus of points of admissable levels of equilibrium for aggregate demand and output