Econ Chapters

23 flashcards · Economics · by Teresa Jones

1. 45 Degree Line

   A reference line with a slope of one that shows equality between the variable measured on the horizontal and vertical axis. In the aggregate expenditure model, the line along which the value of output is equal to the value of aggregate expenditures.

2. Consumption schedule

   A table of numbers showing the amounts households plan to spend for consumer goods at different levels of disposable income.

3. Saving schedule

   A table of numbers showing the amounts households plan to save at different levels of disposable income.

4. Break-even income

   The level of disposable income at which households plan to consume all their income and save none of it.

5. Average propensity to consume

   Consumption / Disposable Income

6. Average propensity to save

   Income saved / Disposable Income

7. Marginal Propensity to Consume

   Change in consumption/ Change in disposable income

8. Marginal propensity to save

   Change in savings / Change in disposable income

9. Wealth effect

   The tendency of people to increase their consumption spending when the value of their financial and real assets rises and to decrease their consumption spending when the value of those assets falls.

10. Paradox of Thrift

    The concept that increased saving can be both good and bad for an economy. When matched in the long run with increased investment spending it is good, but bad in the short run if there is a recession because it reduces spending on goods and services. If the new savings are not translated into investment, the result will be a decline in GDP , output and employment.

11. Expected Rate of Return

    The increase in profit a firm anticipates it will obtain by purchasing capital/ investing in R&D expressed as a percentage of the total cost of the activity.

12. Investment demand curve

    A curve that shows the amounts of investment demanded by an economy at a series of real interest rates.

13. Multiplier

    Change in equilibrium GDP / Change in aggregate expenditures. Shows the effect of a change in spending on real GDP.

14. Planned investment

    The amount that firms plan or intend to invest.

15. Investment schedule

    A table of numbers that shows the amounts firms plan to invest at various possible values of real GDP.

16. Aggregate expenditures schedule

    A table of numbers showing the total amount spent on finals goods and final services at different levels of real GDP.

17. equilibrium GDP

    Where C + Gross Investment = GDP. The only sustainable GDP. 0 unplanned changes in inventory.

18. Leakage

    A withdrawal of potential spending from the income expenditures stream via saving, tax payments or imports.

19. Unplanned changes in inventories

    Changes in inventories that firms did not anticipate. Occur because of shocks in aggregate spending.

20. Net Exports

    Exports - Imports

21. Lump-Sum Tax

    A tax that collects a constant amount at all levels of GDP.

22. Recessionary expenditure Gap

    The amount by which the aggregate expenditures schedule must shift upward to increase real GDP to it's full employment, noninflationary level.

23. Inflationary expenditure Gap

    The amount by which the aggregate expenditures schedule must shift downward to decrease the nominal GDP to it's full employment non-inflationary level.