Term
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Definition
| decisions involving economic trade-offs across periods of time. |
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Term
| consumption-savings decision |
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Definition
| the decision by a consumer about how to split current income between current consumption and savings |
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Term
| Ricardian equivalence theorem |
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Definition
| named for David Ricardo, this thm states that changes in the stream of taxes faced by consumers that leave the present value of taxes unchanged have no effect on consumption, interest rates, or welfare |
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Term
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Definition
| economic model where all decision makrs (consumers and firms) have two-period planning horizons, with the two periods typically representing the present and the future value |
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Term
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Definition
| rate of return on savings in units of consumption goods |
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Term
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Definition
| tendency of consumers to seek a consumption [path over time that is smoother than income |
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Term
| lifetime budget constraint |
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Definition
| condition that the present value of a consumer's lifetime disposable income equals the present value of his or her lifetime consumption |
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Term
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Definition
| the value, in terms of money today or current goods, of a future stream of money or goods |
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Term
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Definition
| the present value of lifetime disposable income for a consumer |
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Term
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Definition
| point on a consumer's budget constraint where consumption is equal to disposable income in each period |
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Term
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Definition
| observed fact that measure consumption is more variable that theory appears to predict |
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Term
| permanent income hypothesis |
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Definition
| a theory developed by Milton Friedman that implies a consumer's current consumption depends on his or her permanent income. Permanent income is closely related to lifetime wealth in our model. |
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Term
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Definition
| an economic variable with the property that the best forecast of its value tomorrow is its value today. Finance theory implies that stock prices are martingales. |
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Term
| Intertemporal substitution effect |
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Definition
| substitution by a consumer of a good in one time period for a good in another time period, in response to a change in the relative price of the two goods. The intertemporal substitution effect of an increase in the real interest rate is for current consumption to fall and future consumption to rise. |
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Term
| marginal propensity to consume (MPC) |
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Definition
| the increase in current consumption resulting from an increase of one unit in current income |
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Term
| government present-value budget constraint |
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Definition
| condition that the present value of government purchases is equal to the present value of tax revenues |
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Term
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Definition
| an idealized credit market in which consumers can borrow and lend all they want at the market interest rate, and the interest rate at which consumers lend is equal to the interest rate at which they borrow |
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Term
| credit market imperfections |
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Definition
| constraints on borrow, or differences between borrowing and lending rates of interest |
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Term
| intertemporal substitution of leisure |
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Definition
| the substitution of leisure between the current and future periods in response to the market real interest rate |
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Term
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Definition
| the friction of capital that wears out in a given period |
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Term
| marginal cost of investment |
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Definition
| the profit forgone by the firm in the current period from investing in an additional unit of capital |
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Term
| marginal benefit from investment |
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Definition
| the future marginal product of capital plus 1-d, where d is the depreciation rate |
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Term
| net marginal product of capital |
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Definition
| the marginal product of capital minus the depreciation rate. |
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Term
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Definition
| rule starting that the firm invests until the future net marginal product of capital is equal to the real interest rate |
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Term
| optimal investment schedule |
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Definition
| a negative relationship between the firm's optimal quantity of investment and the market real interest rate |
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Term
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Definition
| a positive relationship between the quantity of output supplied by firms and the real interest rate |
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Term
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Definition
| a negative relationship between the quantity of output demanded (in the form of consumption expenditures, investment expenditures, and government expenditures) and the real interest rate |
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Term
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Definition
| a model in which growth is not caused by forces determined by the model |
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Term
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Definition
| a model in which growth is caused by the forces determined by the model |
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Term
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Definition
| uses the production function and data on aggregate output, the capital input, and the labor input, to measure the contribution of growth in capital, the labor force, and total factor productivity to growth in aggregate output |
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Term
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Definition
| the aggregate output that remains to be accounted for after measuring the contribution of capital and labor inputs to production; a measure of total factor productivity |
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Term
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Definition
| a decrease in the rate of measured total factor productivity growth beginning about 1973 and continuing into the 1980s |
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Term
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Definition
| a long-run equilibrium; in the Solow growth model the quantity of capital per worker is constant in the steady state |
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Term
| per-worker production function |
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Definition
| y=z(k) where y is output per worker, z is total factor productivity, k is the quantity of capital per worker, and f is a function. The per worker production function describes the relationship between output per worker and capital per worker, assuming, constant returns to scale in the production function. |
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Term
| golden rule quantity of capital per worker |
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Definition
| the quantity of capital per worker that maximizes consumption per worker in the steady state |
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Term
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Definition
| the savings rate that will imply consumption per worker is maximized in the steady state of a competitive equilibrium |
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Term
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Definition
| the accumulated stock of skills and education that a worker has at a point in time |
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Term
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Definition
| a feature of knowledge, in that acquisition of knowledge does not reduce the ability of other to acquire it |
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Term
| efficiency units of labor |
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Definition
| the effective number of units of labor input, after adjusting fo the quantity of human capital possessed by workers |
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Term
| human capital externalities |
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Definition
| effects that exist if contact with an individual with higher human capital increases one's own human capital, or makes one more productive |
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