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28 Cards in this Set
- Front
- Back
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Acoording to the permanent income theory a permanent increase in income will |
equally increase consumption |
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Liquidity Trap an increase in the money supply |
have to effect on interest rate and increase production |
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The internal rate of return |
the rate such that discounting the net revenues of a project at that rate, their sum equals the cost for undertaking to project formally |
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Fiscal Policy is not effective when |
the LM curve is flat and there is large crowding out |
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CPI |
is calculated using the a weighted sum of goods Includes goods produced abroad |
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Crowding out |
is the difference between output and potential output. Is defined as the reduction in private investment due to an increase in public expenditure |
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Neoclassical Theory |
Under neoclassical theory capital stock when the marginal benefit of the stock equals the marginal cost. If depreciation rate of capital increases then capital will decrease |
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Neoclassical condition, MB=MC then |
PF'(K)=R |
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According to the Keynesian theory an increase in income will |
increase consumption by the same amount |
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The IS curve represets |
Equilibrium in the goods market |
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With a reduction in G then the IS-LM model indicates that |
interest rates and production will go down |
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The most volatile component of aggregate consumption is |
non-durable consumption |
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If the parameter h (speculative demand for money) decreases then |
interest rates and production decrease |
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According to the fisher theory consumers |
to maximize utility |
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in the modigliani theory a temporary tax rebate will be |
consumed |
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A decrease in the money supply will |
shifts the LM curve to the left |
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The LM curve represents |
Equilibrium on the money market |
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If marginal propensity to consume increases then |
The IS curve shifts to the right |
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Marginal Propensity |
is the amount of disposable income |
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If the public expenditure and money supply are increased then |
interest rates are increase and production is decreased |
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ff |
ggg |
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Under liquidity trap fiscal policy is highly effective because |
the LM curve is horizontal and there is no crowding out effect |
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CPI is more used than GDP deflator because |
includes national and imported products |
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In the Fisher Theory of consumption, when a consumer borrows money to allow for greater consumption, she is |
escaping his intertemporal budget constraint |
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Consumption is said to follow a random walk if |
changes in consumption are unpredictable |
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Government Debt to GDP ratio tends to increase when the |
interest rate is high |
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Liquidity trap is caused by |
a flat LM |
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The disequilibrium theories of the business cycle explain business cycles as a function in |
output gap |
