Macroeconomics Unit 3

Front 1

reference line on which every point consumption equals disposable income

Back 1

45 degree line

Front 2

when does dissaving occur?

Back 2

at levels of low disposable income

Front 3

income level at which households plan to consume their entire incomes

Back 3

break-even income

Front 4

fraction or percentage of total income thats is consumed

Back 4

average propensity to consume

Front 5

proportion of any change in income

Back 5

marginal propensity to consume

Front 6

fraction of any change in income saved

Back 6

marginal propensity to save

Front 7

assets - liabilities = ?

Back 7

wealth

Front 8

tendency for households to increase spending and reduce saving then there is a boost in value of existing wealth

Back 8

wealth effect

Front 9

what are the two basic determinants in investment spending?

Back 9

expected returns and interest rate

Front 10

change in a component of total spending that leads to a larger change in GDP

Back 10

multiplier effect

Front 11

determines how much larger the change in GDP will be; ratio of change in GDP to initial change in spending

Back 11

multiplier

Front 12

amount of goods and services produced and therefore the level of employment depend directly on the level of this (total spending)

Back 12

aggregate expenditures

Front 13

investment schedule showing the amounts business firms collectively intend to invest, constructed at each level of GDP

Back 13

planned investment

Front 14

– shows the amount (C +Ig) that will be spent at each possible output or income level

Back 14

aggregate expenditures schedule

Front 15

That output whose production creates total spending just sufficient to purchase that output

Back 15

equilibrium GDP

Front 16

withdrawal of spending from the economy’s circular flow of income and expenditures

Back 16

leakage

Front 17

an addition of spending to the income-expenditure stream; investment becomes replacement for leakage of saving

Back 17

injection

Front 18

a tax of a constant amount or yielding the same amount of tax revenue at each level of GDP

Back 18

lump-sum tax

Front 19

the amount by which aggregate expenditures at the full-employment GDP fall short of those required to achieve the full-employment GDP

Back 19

recessionary expenditure gap

Front 20

what are the three solutions that Keyne's proposed to the recessionary expenditure gap?

Back 20

1. increase gov't spending
2. decrease taxes
3. as economy closes gap, nearly all workers will be employed and prices not fully stuck

Front 21

the amount by which an economy’s aggregate expenditures at the full-employment GDP exceed those just necessary to achieve the full-employment level of GDP

Back 21

inflationary expenditure gap

Front 22

schedule or curve that shows the amounts of real output that buyers collectively desire to purchase at each possible price level

Back 22

aggregate demand

Front 23

tendency for increases in the price level to lower the real value (purchasing power) of financial assets with fixed money value and, as a result, to reduce total spending and real output, and conversely for decreases in the price level

Back 23

real-balances effect

Front 24

tendency for increases in price level to increase demand for money, raise interest rates, and as a result, reduce total spending and real output in the economy

Back 24

interest-rate effect

Front 25

the inverse relationship between the net exports of an economy and its price level relative to foreign price levels

Back 25

foreign-purchases effect