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Macroeconomics
CoreMacroeconomics by Stone, Chap. 7-9
27
Economics
Undergraduate 1
11/29/2009

Additional Economics Flashcards

 


 

Cards

Term

J. B. Say's Macroeconomic Model

Definition

1. Say relies upon the cirular fow to develop his thesis:

- Say's Law = Supply creates it's own demand

2. If markets are allowed to clear themselves in each and every market, whether it be a commodity, labor, or loanable funds market, then the macroeconomy will always tend towards full employment.

3. Assumes that savings will always equal investment.

4. Thus, he asserts that govt spending isn't needed to obtain full employment.

Term

Keynes' Criticism of Say's Model

Definition

There are non-price reasons for individual saving:

1. saving for future consumption (housing, cars, education)

2. saving for future problems (unemployment, illness, old age)

3. saving cause you can't spend it fast enough

There are non-price reasons for investing:

1. Business climate

2. Opportunities for profit

3. Technological change

In a recession/depression, non-price reasons will cause the savings rate to increase; non-price reasons for investing will cause the rate of investment to decrease.

Savings does not have to equal investment.

The economy does not necessarily tend toward full employment.

Term

Keynesian Macroeconomic Model

Definition
Term

Aggregate Demand

Definition
Term

Aggregate Supply

Definition
Term

Consumption Function

Definition
Term

Aggregate Consumption

 

Definition

1. Durable goods:

Last longer than 3 years (cars and appliances). Smallest sector and only one that fluctuates over the business cycle.

2. Non-durable goods:

Don't last longer than 3 years (food and textiles). 

3. Services:

Non-tangible commodities.

Other Influences:

A. Tax rate

B. Terms of credit on credit cards

C. Stock of assets

D. Price expectations

E. Attitudes toward thrift

Term

Engel's Laws

Definition

1. As the level of family income increases, the percent of income spent on food decreases.

2. As the level of family income increases, the percent of income spent on housing remains constant.

3. As the level of family income increases, the percent of income spent on medical care increases.

4. As the level of family income increases, the percent of income on most other goods increases. 

Term
In a simple Keynesian model, how can we curtail the level of consumption?
Definition
Term
What is one of the more volatile items of investment?
Definition
Term
Marginal propensity to consume:
Definition
Term
What are public works projects?
Definition
Term
What can the government do to increase the GDP?
Definition
Term
What can the government do to decrease the GDP?
Definition
Term
What is the consumption factor?
Definition
C=a+bY
Term
What are the Keynesian simplifying assumptions?
Definition
Term
What was Keynes' theory of employment?
Definition
Term
What does the consumption function show?
Definition
Term
How is unemployment compensation categorized?
Definition
Term
What are  stabilizers?
Definition
Government spending programs that can be used to manipulate the aggregate demand.
Term
What are automatic stabilizers?
Definition
Those programs that automatically adjust to manipulate the aggregate demand.
Term

What are discretionary stabilizers?

Definition

Those programs that the federal government, at their own discretion, can use to manipulate the aggregate demand.

1. public works - create social overhead capital and are projects that the govt has to construct anyway

2. welfare - primary function of the federal govt, spending can be manipulated so it counteracts fluctuations in the growth of the GDP

3. tax rates - can be manipulated so that they always work to counter the business cycle, however it takes a long time for Congress to change tax code

 

 

 

 

Term
How does the interest rate affect investment?
Definition
Term
What is aggregate demand?
Definition
Term
Short-runt vs. long-run GDP
Definition
Term
What is aggregate supply?
Definition
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