Macroeconomics Terms For Final

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Aggregate Demand

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is the total amount that all consumers, business firms, gov't agencies, and foreigners spend on final goods and services

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Consumer Expenditures ( C )

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is the total amount spent by consumers on newly produced goods and services (excluding homes - which are investments)

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Aggregate Demand

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C + I + G + (X - IM)

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Investment Spending ( I )

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is the sum of the expenditures of business firms on new plants and equipment and households on new homes. (Financial "investment" stock/bonds are not included nor are resales of existing physical assets

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Government Purchases ( G )

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refers to the goods (supplies) and services (teachers / police) purchased by all levels of government

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Net Exports or X - IM

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is the difference between export ( X ) and imports ( IM ) - it indicates the difference between what we sell to foreigners and what we buy from them.

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National Income

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is the sum of the incomes that all individuals in the economy earn in the forms of wages, interest, rent and profit. (Excludes gov't transfer pymt and is calculated before any deductions are taken for income taxes

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Disposable Income ( DI )

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is the sum of incomes of all individuals in the economy after all taxes have been deducted and all transfer payments have been added

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Transfer Payments

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are sums of money that gov't gives certain individuals are outright grants rather that as payments for services rendered to employers. Ex: Social security and unemployment benefits

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Disposable Income ( DI ) (Pg. 157) note 1

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A tax increase decreases after-tax income

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Disposable Income ( DI ) (Pg. 157) note 2

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A tax reduction increases after-tax income

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Scatter Diagram

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is a graph showing the relationship between two variables (such as consumer spending and disposable income)

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Consumption Function

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shows the relationship between total consumer expenditures and total disposable income in the economy, holding all other determinants of consumers spending constant

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Marginal Propensity to Consume ( MPC )

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is the ratio of the change in consumption relative to the change in disposable income MPC = C / DI

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Money-fixed asset

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is an asset whose value is a fixed number of dollars

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GDP = Wages + Interest + Rent + Profits

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GDP = Wages + Interest + Rent + Profits

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Depreciation

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is the value of the portion of the nation's capital equipment that is used up within the year. It tells us how much output is needed just to maintain the economy's capital stock

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Equilibrium

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refers to a situation I which neither consumers nor firms have any incentive to change their behavior. They are content to continue with things as they are.

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Income-Expenditure diagram

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plot total real expenditure against real income.

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Recessionary GDP

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is the amount by which the equilibrium level of real GDP falls short of potential GDP

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Inflationary GDP

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is the amount but which equilibrium /real GDP exceeds the full-employment level of GDP

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Coordination failure

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occurs when party A would like to change his behavior if party B would change hers, and vice versa and yet the two changes do not take place because the decision of A and B are not coordinated

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Multiplier

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is the ratio of the change in equilibrium GDP (Y) divided by the original change in spending that causes the change GDP

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Multiplier equation

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Y / I

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Induced increase in consumption

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is the increase in consumer spending that stems from an increase in consumer income (it is represented on a graph as a movement along a fixes consumption function)

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Autonomous increase in consumption

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is an increase in consumer spending without any increase in consumer incomes. It is represented on a graph as a shift of the entire consumption function

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Aggregate Supply Curve

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shows for each possible price level, the quantity of goods and services that all the nation's business are willing to product during the specified period of time, holding all other determinants of aggregate quantity supplied constant

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Productivity

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is the amount of output produced by a unit of input

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Self-correcting mechanism

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refers to the way money wages react to recessionary gap or an inflationary gap. Wages changes ship the aggregate supply curve and therefor changes equilibrium GDP and the equilibrium price level

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Stagflation

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in inflation that occurs while the economy is growing slowly or having a recession