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Economics Final #2
Macroeconomics Midterm #2 Study cards
35
Economics
Undergraduate 1
04/03/2013

Additional Economics Flashcards

 


 

Cards

Term
Marginal Propensity to spend
Definition
The fraction of a change in income that is spent on consumption consumption; 1/(1-mpc)
Term

Marginal Propensity to Save

Definition
The fraction of a change in income that is saved; 1/1-mpc
Term
What is the relationship between MPC and consumption and savings?
Definition
MPC is measured graphically by the slope of the consumption function.
Term
What is the relationship between MPS and the saving function?
Definition
The saving function is the relationship between saving and income. The savings divided by income is MPS.
Term
The Non-income Determiants of Consumption
Definition
  • Net Wealth and Consumption
  • The Price Level
  • The Interest Rate
  • Expectations
Term
The Non-income Determiants of Investment
Definition
  • Market Interest Rate
  • Business Expectations
Term

Government Purchases


  • What is the government purchase function?
Definition
The relationship between government purchases and the economy's income.
Term

Non-income Determinants of Net Exports


  • What are they?

 

Definition
  • U.S. Price Level
  • Price levels in other countries
  • interest rates here and abroad 
  • Foreign income levels
  • exchange rate for U.S. dollar and foreign curencies.
Term

GDP and Spending



  • What happens if spending exceeds real GDP?
  • What happends if GDP exceeds spending? 

 

Definition

 

  • When spending exceeds real GDP you get a reccesionary gap.
  • When real GDP exceeds spending you get an expansioary gap.
Term

Simple Spending Multiplier


  • What is it?
Definition

Simple spending multiplier--1/(1-MPC)

 

  • The ratio of a change in real GDP demanded to the initial change in spending that brough it about. 
Term

The effects of price level on aggregate demand

 


  • What are the effects of price level on aggregate demand?

 

Definition
  • The Higher the price level the lower hte aggregate demand and vice-versa
Term
Short Run
Definition
A period during which some resource prices, especially those for labor, are fixed by explicit or implicit agreements.
Term
Short-run aggregate supply (SRAS) curve
Definition
A curve that shows a direct relationship between the actual price level and real GDP supplied in the short run, other things constant, including teh expected price level.
Term
Short run
Definition
A period during which wage contracts and resource price agreements can be renegotiated; there are no surprises about the economy's actual price level.
Term
Long-run
Definition
A vertical line at the economy's potential output;  aggreagate supply when there are no surprises about the price level and all the resource contracts can be renegotiated.
Term
Real Wage
Definition
The wage measured in dollars of constant purchasing power; the wage measured in terms of the quantity of goods and services it buys.
Term
Nominal Wage
Definition
The wage measured in dollars of a year in question; the dollar amount on a paycheck.
Term
Potential Output
Definition
The economy's maximum sustainable output, given the supply of resources, technology, and rules of the game; the output level when there are no surprises about the price level.
Term
Natural Rate of Unemploymen
Definition
The unemployment rate when the economy produces it's potential output and when cyclical unemployment is zero.
Term
Expansionary Gap
Definition
The amount by which actual output in the stort run exceeds the economy's potential output. When GDP exceeds spending.
Term
Recessionary Gap
Definition
The amount by which actual output in the short run falls short of the economy's potential output. When spending exceeds GDP.
Term

Evolution of fiscal policy from 1930s  to present


  • What is it?
    • Automatic stabilizers
    • discretionary fiscal policy
Definition

 

Automatic Stabilizer- Structural freatures of government spending and taxation that reduce fluctuations on disposable income, and thus consumption, over the business cycle.

 

Discretionary fiscal policy- The deliberate manipulation of government purchasesm taxation, and transfer payments to promote macroeconomics goals, such as full employment, price stability, and economic growth.

Term

Evolution of fiscal policy from 1930s  to present


  • Why didn't we have it before?
Definition
Term

Evolution of fiscal policy from 1930s  to present

 


  • How a budget is implemented
  • What are the problems with the process? 
Definition

Federal Budget- A plan for federal government outlays (including both government purchases and transfer payments) and revenues for a specific period.

                    The Problems

  • Continuing resolutions instead of budget decisions
  • Lengthy budget process
  • uncrontollable budget items
  • No separate capital budget 
  • overly detailed budget 
Term

Competing Budget Philosophies


 

  • Annually balanced budget
Definition
Budget philosophy prior to the Great Depression; aimed at matching annual revenues with outlays, except during times of war
Term

 

Competing Budget Philosophies


 

  • Cyclically balanced budget

 

Definition
A budget philosophy calling for budget deficits during recessions to be financed by budget surpluses during expansionary
Term

Competing Budget Philosophies


 

  • Functional finance
Definition
A budget philosophy using fiscal polivy to achieve the economy's potential GDP, rather than balancing budget either annually or over the business cycle.
Term

History of Deficit Spending


 

  • What is the history of deficit spending?
Definition

Federal budget has been in deficit in all but 12 years since 1930. It decreased during 1990s and turned into a surplus, however, with a recession in 2001 and other factors, it went back into 3.5% relative to GDP by 2003.

Term
Crowding out
Definition
The displacement of interest-sensitive private investment that occurs when higher government deficits drive up market interest rates.
Term
Crowding in
Definition
The potential for government spending to stimulate private investment in an otherwise dead economy.
Term

Circumstances surrounding 1990s Surplus



Definition
  • rising worker productivity
  • growing consumer spending
  • globalization of markets 
  • strong stock market
Term

National Debt and Debt Held by the Public


Gross National Debt

Definition
The net accumulation of federal budget deficits
Term

National Debt and Debt Held by the Public


Public Debt

Definition
Debt held by the public
Term

Effect of Interest on National Debt



Definition
Interest causes the national debt to increase.??
Term
Who bears the burden of national debt
Definition
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