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AP ECON 1010 (YorkU)
Chapter 27-30
31
Economics
Undergraduate 2
03/20/2016

Additional Economics Flashcards

 


 

Cards

Term
Factors That Influence Consumption and Savings Plans (4)
Definition

1) Disposable income

2) Real interest rate

3) Wealth

4) Expected future income

Term

Consumption Function Relationship and Curve

Savings Function Relationship and Curve

Definition

Consumption func. is relationship b/w consumption expen. (C) and disposable income

Savings func. is relationship b/w savings (S) and disposable income

Consumption function is shown with a 45 degree line sloping up, savings function is shown sloping up and hitting the x-axis on its own.

Term
Marginal Propensities Formulas (3)
Definition

MPC = Change in C/Change in YD (Slope of consum. func.)

MPS = Change in S/Change in YD (Slope of savings func.)

MPC + MPS = 1

C = Consumption Expenditure, S = Savings, YD = Disposable Income

Term
What does Real GDP Determine and What is it Affected by?
Definition
It determines the equilibrium expenditure and is affected by imports and consumption expenditure, when either of these changes, Real GDP will change and disposable income will change because of the change in real GDP.
Term
Induced and Autonomous Expenditure Definitions
Definition

Induced expenditure is consumption expenditure minus imports which varies with real GDP.

Autonomous expenditure is the sum of investment, gov. expen. and exports, it does not vary with real GDP.

Autonomous expenditure can also have consumption and import components if they don't vary w/ real GDP.

Term
Actual Expenditure and Planned Expenditure are Equal to?
Definition

Actual is equal to real GDP or shown by the equation

AE = C+I+G+X-M but planned expenditure is not exactly equal, there could be inventories that are greater or smaller meaning if inventory is left unsold (unplanned inventories) then it is less then real GDP.

Term
The Multiplier is...
Definition

The amount by which a change in automous expenditure is magnified to determine the change in equilibrium expenditure and real GDP. Cause by induced also being affected and changing real GDP a second time.

 

Multiplier = Change in equilibrium expen/Change in autonomous expen. or = 1/MPS

Term
Why does the Aggregate Demand Curve Shift Downward? (2)
Definition

1) Wealth effect

2) Substitution effect (2)

Do previous chapter flash cards for reasons.

Term
Inflation Occurs in Short/Long Run When...
Definition

In long run when the # of money (AD Curve) grows faster then potential GDP (LAS Curve)

In short run when one of two effects occur

Inflation must be persistent increase in # of money.

Term
Short Run Inflation Effects (2)
Definition

1) Demand-pull (AD shifts to right and SAS shifts to left)

2) Cost-push (SAS Curve shifts left, Bank of CAD increases AD and it shifts to the right)

Term
Two Main Sources that Cause a Cost-Push Inflation
Definition

1) An increase in the money wage rate

2) An increase in the money prices of raw materials

Term
When We Have Expected Inflation... What Is The Outcome?
Definition

The nominal wage rate will respond accordingly.

If the expectations are right then nothing goes wrong.

If expectations are wrong then we move away from potential GDP, real GDP is either lower or higher.

Term
Rational Expectation
Definition
The best forecast we can make with our info
Term
How to Determine Deflation?
Definition

Use the quantity theory formula

Inflation rate = Money growth rate + Rate of velocity change - Real GDP growth rate

Term
Anticipated vs Unanticipated Deflation
Definition

Anticipated is okay.

Unanticipated can cause a decrease in real GDP, employment and re-distributes wealth and income

Term
How to Resolve Deflation?
Definition
Increase the growth rate of money
Term
Short/Long Run Phillips Curve Represents...
Definition

In short run is represents relationship b/w inflation and unemployment with

1) expected inflation rate and

2) natural employment held constant

In long run it is the inflation rate and unemployment with the actual inflation rate equal to the expected inflation rate (LRPC is a straight line, real wage is constant)

Term
Change in Expected Inflation and Change in Natural Unemployment Rate
Definition

A change in expected inflation causes the LRPC curve to have a movement, SRPC shifts left and expected inflation decreases

A change in natural unemployment rate shifts both LRPC and SRPC, an increase shifts them rightward

Term
Federal Budget is Used To (2)
Definition

1) Finance activites for federal gov.

2) Achieve macroeconomic objectives

Term
Who makes the Budget?
Definition
The federal gov. and parliament
Term
Deficit vs. Debt
Definition

Debt is the historical amount you owe

(sum of past deficits - sum of past surpluses)

Deficit is the amount you owe in the current period

Term
Outlays Consist of (3)
Definition

1) Transfer payments

2) Expenditure on goods

3) Debt interest

Term
Revenue Consists of (4)
Definition

1) Personal income taxes

2) Corporation income taxes

3) Indirect and other taxes

4) Investment income

Term
What is the Effect of a Tax?
Definition
There is a tax wedge, it shifts the labour supply curve leftward. There is a movement on the production function and it moves downward.
Term
Laffer Curve
Definition
Show the relationship between tax revenue and tax rate, says after a certain point tax revenue will decrease once tax rate becomes too high
Term
Types of Fiscal Stimulus (2)
Definition

1) Automatic Stimulus

2) Discretionary Stimulus

Term
Causes for Automatic Stimulus (2)
Definition

1) Tax revenue

2) Transfer payments

In a boom period both decrease disposable income and decrease AD.

Term
Types of Budget Balances (2) and When do They Occur?
Definition

1) Cyclical Surplus/Deficit

2) Structural Surplus/Deficit
Cyclical occurs when real GDP is not equal to potential GDP

Structural occurs when real GDP is equal to potential GDP (Straight line) 

Term
Types of Fiscal Multipliers (2)
Definition

1) Government expenditure (G) multiplier

2) Tax (T) multiplier

Term
Time Lags (3)
Definition

1) Recognition lag

2) Law-making lag

3) Impact lag

Term
What do T and G Multipliers Affect The Most?
Definition

T multiplier affects aggregate supply more and has a small impact on AD.

G affects AD a lot more and has less of an impact on aggregate supply.

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