Macroeconomics Exam 2 Vocab Ch 7 8 And 9

Front 1

CH. 7

determined by the equal contribution of both demand and costs of production

Back 1

Equilibrium price

note that: aggregate expenditure and aggregate supply contribute to equilibrium national income.

Front 2

Spending by consumers on consumption goods, spending by businesses on investment goods, spending by government, and spending by foreigners on net exports.

Back 2

Aggregate expenditure

Front 3

Recall that the amount of consumer income spent on consumption and saving is represented by:

Back 3

Y = C + S

Front 4

recall that the amount of production goods and investment goods produced by producers is represented by:

Back 4

Y = C + Ii

note that: The I = S equation describes the economy in macroequilibrium. No excess demand or supply exists. Aggregate expenditure equal aggregate supply.

Front 5

C + Ii = C + S, where saving equals intended investment

Back 5

Equilibrium level of national income

note that: The I = S equation describes the economy in macroequilibrium. No excess demand or supply exists. Aggregate expenditure equal aggregate supply.

Front 6

Goods produced for consumption that remain unsold.

Back 6

Unwanted inventories

Front 7

Investment spending that producers actually make – that is, intended investment (investment spending that producers intend to undertake), plus or minus unintended changes in inventories.

Back 7

Actual investment (Ia)

Front 8

A curve that shows the quantity of aggregate expenditures at different levels of national income or GDP.

Back 8

Aggregate expenditure curve (AE):

note that:

The intersection of the 45° income curve and AE identifies the economy’s equilibrium position.

-When Ii > S, producers hire more workers to replace depleted inventories. Y increases and continues to increase until Ii = S.

-When S > Ii, inventories build up and producers lay off workers. Y decreases until Ii = S.

Front 9

The multiple by which income changes as a result of a change in aggregate expenditure

Back 9

Income multiplier

It is written as:

multiplier = (change in Y )/(change in AE)

Front 10

The formula to determine the income multiplier is written as...

Back 10

1/(1 - MPC).

Since (1 - MPC) = MPS, the formula can be written:

1/MPS.

Front 11

The more people try to save, the more income falls, leaving them with no more and perhaps even less saving

Back 11

The paradox of thrift

(S > Ii). The equilibrium level of national income falls.

Front 12

CH. 8

• Relatively brief periods of unemployment caused by people deciding to voluntarily quit work in order to seek more attractive employment

Back 12

Frictional unemployment

Front 13

Unemployment that results from fundamental technological changes in production, or from the substitution of new goods for customary ones

Back 13

Structural unemployment

Front 14

Unemployment associated with the downturn and recession phases of the business cycle.

Back 14

Cyclical unemployment

Front 15

• Unemployed people who give up looking for work after experiencing persistent rejection in their attempts to find work.

Back 15

Discouraged workers

Front 16

Workers employed in jobs that do not utilize their productive talents or experience

Back 16

Underemployed workers

Front 17

People who are gainfully employed or actively seeking employment

Back 17

Labor Force

Front 18

The rate of unemployment caused by frictional plus structural unemployment in the economy

Back 18

The Natural rate of Unemployment

Front 19

An employment level at which the actual rate of unemployment in the economy is equal to the economy’s natural rate of unemployment

Back 19

Full Employment

I.E. Cyclical unemployment is zero

Front 20

The amount by which aggregate expenditure falls short of the level needed to generate equilibrium national income at full employment without inflation

Back 20

Recessionary Gap

Front 21

The amount by which aggregate expenditure exceeds the aggregate expenditure level needed to generate equilibrium national income at full employment without inflation

Back 21

Inflationary Gap

Front 22

Government spending and taxation policy to achieve macroeconomic goals of full employment without inflation

Back 22

Fiscal Policy

Front 23

Government spending equals tax revenue. The equation is written:

G = T,

Where G = government spending and T = tax revenue.

Back 23

Balanced budget

Front 24

The multiple by which the equilibrium level of national income changes when a dollar change in taxes occurs. The multiple depends upon the marginal propensity to consume.

Back 24

Tax Multiplier

The equation for the tax multiplier is:

-MPC/(1 - MPC).

Front 25

The effects on the equilibrium level of national income of an equal change in government spending and taxes. The balanced budget multiplier is 1.

Back 25

Balanced Budget Multiplier

Front 26

Government spending exceeds tax revenues

Back 26

Budget deficit

Front 27

Tax revenues exceed government spending.

Back 27

Budget surplus

Front 28

CH. 9

An increase in real GDP, typically expressed as an annual rate of real GDP growth.

Back 28

Economic growth

Front 29

Principal factors that contribute to a nation’s economic growth:

Back 29

1) The size of its labor force
2) The degree of labor specialization
3) The size of its capital stock
4) The level of its technology

Front 30

The ratio of capital to labor, reflecting the quantity of capital used by each laborer in production

Back 30

Capital-labor ratio

Front 31

The quantity of GDP produced per worker, typically measured in quantity of GDP per hour of labor

Back 31

Labor productivity

Front 32

A rise in the ratio of capital to labor.

Back 32

Capital deepening

Front 33

The ratio of capital stock to GDP

Back 33

Capital-output ratio

Front 34

• Wars, changes in climate, population booms, clustering of innovations, changes in consumer confidence, changes in government spending, or changes in international exchange rates.

Back 34

externally induced cycles

Front 35

According to William Stanley Jevons, years of good harvest, low food prices, and higher real income and employment, is what theory of the business cycle

Back 35

Sunspot theory

it states that: years of good harvest, low food prices, and higher real income and employment, are inversely related to the number of sunspots.
• The sunspot theory mostly applies to agricultural economies, and is less relevant to modern industrialized countries.

Front 36

• Wars require massive increases in government spending, which tends to increase economic growth. Marxists and others have argued that wars are sometimes engineered to get us out of economic crises.

Back 36

War-induced cycles

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• Disasters or low interest rates spur large investments in new housing, which in turn promotes increased economic growth. As housing investment slows, so too does economic growth

Back 37

housing theory of the business cycle

Front 38

• Pioneering innovations promote a host of supporting innovations in clusters, and thus produce their own variety of business cycle. Steam engines, railroads, electricity, cars, and computers offer some examples.

Back 38

innovation theory of the business cycle

Front 39

Changes in investment spending and changes in national income are mutually reinforcing due to the role of expectations

Back 39

internally induced business cycles

Front 40

• The relationship between the level of investment and the change in the level of national income

Back 40

Accelerator

Front 41

• Fiscal policy designed to moderate the severity of the business cycle

Back 41

Countercyclical fiscal policy

Front 42

• The time interval between deciding on an appropriate policy and the execution of that policy.

Back 42

Administrative lag