Term
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Definition
Consumption + Investment + Govt Spending + (Exports - Imports)
C+I+G+(X-Imp) |
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Term
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Definition
C
goods and services purchased by consumers
C=C(Yd)
+ |
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Term
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Definition
I
Firms purchase of goods that raise output
Function of the interest rate i
_
I=I = Investment is a given |
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Term
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Definition
G
goods and services by federal, state and local governments |
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Term
| Equilibrium in the Goods Market |
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Definition
Production = Demand
Y=Z - equilibrium condition |
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Term
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Definition
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Term
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Definition
disposable income
Income - Taxes
(Y-T) |
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Term
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Definition
| dependent variable explained in the model |
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Term
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Definition
| Variables taken as a given in the model |
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Term
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Definition
| T & G - chosen by the government |
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Term
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Definition
c0 (y intercept) + c1 (perpensity to consume)*Yd(disposable income)
c0+c1(YD) = c0+c1(Y-T) [image] |
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Term
| Expanded Output Formula when I is a given |
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Definition
_
Y=c0+c1(Y-T)+I+G
_
Y=c0+c1Y-c1T+I+G
_
(1-c1)Y=c0+-c1T+I+G
1
---- _
Y=(1-c1)c0+-c1T+I+G
1/(1-c1 )= money multiplier[image] |
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Term
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Definition
| Demand for goods that does not depend on output |
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Term
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Definition
| multiplies autonomous spending |
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Term
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Definition
S
Savings by consumers
Disposable Income - Consumption
Yd-C= (Y-T)-C |
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Term
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Definition
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Term
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Definition
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Term
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Definition
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Term
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Definition
Equilibrium in the goods market
Investment = Savings
Production =Demand |
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Term
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Definition
Money (currency & checkable depositis)
used for transactions
pays 0 interest
Bonds
positive interest rate (i)
cannot be used for transactions |
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Term
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Definition
put together peoples funds and use them to buy bonds
interest is slightly below the interest of a bond |
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Term
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Definition
Md=$YL(i)
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overall level of demand in the economy and the interest rate
increase in interest rate leads to a decrease in a consumers need to hold money [image] |
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Term
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Definition
Md=M
Central bank supplies a certain amount of money dependent on the interest rate |
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Term
| Equilibrium in the Financial Market |
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Definition
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Term
| Movement between Md curve and Ms curve |
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Definition
When in equilibrium, an increase in nominal demand increases the interest rate, offsetting both changes and keeping the economy in equilibrium
[image]
An increase in money demanded leads to an decrease in interest rates, thus creating a new equilibrium
[image] |
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Term
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Definition
central banks ability to buy bonds by printing off more money and raising the Ms
sell bonds to remove the bonds from the open market and decrease the Ms |
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Term
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Definition
| central bank increases (expands) Ms |
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Term
| Contractionary Operations |
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Definition
| central bank decreases (contracts) Ms |
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Term
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Definition
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Term
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Definition
stock of money in the economy
[image] |
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Term
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Definition
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Term
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Definition
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Term
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Definition
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Term
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Definition
| A certain amount of dollars that banks keep in case of withdrawals of money, ect. |
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Term
| Demand for Reserves By Banks |
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Definition
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Term
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Definition
| interest rate cannot go below zero |
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Term
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Definition
| when the interest rate is down at zero and monetary policy cannot decrease it further |
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Term
| Investment (not as a constant) |
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Definition
I=I(y,i)
+ -
depends on:
Sales & Income |
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Term
| IS Relation when I is NOT a constant |
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Definition
[image]
equilibrium level of output as a function of the interest rate |
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Term
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Definition
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Term
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Definition
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Term
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Definition
| Government - and increase in the deficit due to increase in government spending or reduction in taxes |
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Term
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Definition
| Government - decrease in government spending or increase in taxes |
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Term
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Definition
| Central Bank - an increase in the money supply and a decrease in the interest rate [image] |
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Term
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Definition
| Central bank - a decrease in Money supplied and a increase in interest rate |
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Term
| Monetary-Fiscal Policy Mix |
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Definition
| A combination of monetary and fiscal policies |
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Term
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Definition
i
interest rates expressed in dollars |
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Term
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Definition
r
Interest Rates expressed in basket goods |
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Term
| Approximate Real Interest Rate |
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Definition
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Term
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Definition
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Term
| Nominal Borrowing Interest Rate |
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Definition
| Nominal Interest Policy Rate + Risk Premium |
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Term
| Real Borrowing Interest Ratew |
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Definition
| Nominal Interest Policy Rate - Expected Inflation |
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Term
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Definition
Bond holders require a risk premium in the case that a consumer may not be able to pay
x=(1+i)p/(1-p) |
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Term
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Definition
| Ratio of capital to assets |
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Term
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Definition
Ratio of leverage to assets
increase in leverage ratio leads to a increase in expected profit rate and in turn an increase in a risk of bankruptcy |
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Term
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Definition
| A decrease in the liquidity of assets leads to an increase on the risk for fire sale and in turn increase in solvent loans |
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Definition
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Definition
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