# Shared Flashcard Set

## Details

Macroeconomics 6-8
chapters 6-8
66
Economics
04/16/2010

Term
 aggregate demand
Definition
 is the domestic product demanded by households, firms, governments and the rest of the world, at each given price level in an economy during a given time period
Term
 when aggregate demand increases
Definition
 inflation and jobs increase
Term
 when aggregate demand decreases
Definition
 the price level falls and jobs decrease
Term
 aggregate supply
Definition
 is the domestic product produced by firms at each given price level in an economy during a given time period
Term
 when aggregate supply decreases
Definition
 an adverse supply shock-->inflation and unemployment increases
Term
 potential GDP growth formula
Definition
 growth rate(t+1)=growth rate in labor hours(t+1)+growth rate of labor productivity(t+1)
Term
 aggregate expenditure
Definition
 1)is the total spending on final goods and services2) AE=C+I+G+(X-M)
Term
 45 degree line
Definition
 1) line shows the points for which consumption and disposable income are identical
Term
 left of the 45 degree line intersection with consumption
Definition
 households dissave
Term
 right of the 45 degree line intersection with consumption
Definition
 households save
Term
 economic growth formula
Definition
 {[RealGDP(t+1)-RealGDP(t)]/[RealGDP(t)]}*100
Term
 economic growth
Definition
 1) sustainable increase in productive capacity2) results from an increase in AS, and commonly we see a corresponding increase in AD due to new income and expectation changes
Term
 the law of diminishing returns (GDP)
Definition
 the more labor input is increases, eventually increases to real GDP are smaller
Term
 production function
Definition
 GDP depends upon the amount of labor input employed in the production prcoess
Term
 real wage rate
Definition
Term
 real wage rate equals
Definition
 ([current wage]/CPI)*100
Term
 convergence hypothesis
Definition
 1) developing countries living standards will catch up with developed countries' via higher growth rates
Term
 year of 70 convergence formula
Definition
 # years = 70/growth rate (in%)
Term
 consumption function
Definition
 C=a+(MPC*DI)
Term
 neoclassical growth theory
Definition
 1) drives living standards2) growth due to technological change iseconomic growth rate per hr--(1/3x capital growth per labor hr)3) faster technological change, the faster standard of living improves
Term
 better technological change
Definition
 1) more education2) more capital formation3) more basic research and development
Term
 induced consumption (MPC*DA)
Definition
 the economies of the MPC is that disposable induces spending
Term
 marginal propensity to consume (MPC)
Definition
 1) the ratio in consumption to the change in disposable income2) MPC=(c2-c1)/(d2-d1)3) constant
Term
 disposable income
Definition
 1) is the difference between GDP(Y) and net taxes (T), and accounting for transfer payments
Term
 DI equals
Definition
 DI=GDP-(taxes-transfer payments)DI=Y-T
Term
 creative destruction
Definition
 new capital replaces old capital and generates an investment boom
Term
 savings equals
Definition
 S=DI-Cnegative is dissavings
Term
 MPS
Definition
 Marginal propensity to save2) MPC+MPS=1for every dollar x goes to savings
Term
 government purchases
Definition
 1) 3rd largest spender in the US economy at appx 19%2) purchases: health care, defense, roads, edu, etc
Term
 transfer payments
Definition
 are grants of money from the government without expectation for tasks or productsex: social security
Term
 exports
Definition
 are goods and services produced domestically and purchased by foreigners
Term
 net exports equals
Definition
 1) NX=X-M2) x is exports3) m is imports
Term
 imports
Definition
 are goods produced in a foreign economy and purchased domestically
Term
 depreciation
Definition
 1) is a deduction from corporate profit income, but is not an actual cash deduction
Term
 GNP
Definition
 gross national product
Term
 GNP equals
Definition
 national income+depreciation+discrepancy = GNP
Term
 which is more volatile investment or consumption?
Definition
 investment
Term
 GDP deflator
Definition
 a price index for the entire economy
Term
 GDP deflator equals
Definition
 =[(nominal GDP)/(real GDP)]*100
Term
 nominal GDP
Definition
 current quantities at current prices
Term
 real GDP
Definition
 current quantities at reference prices
Term
 labor productivity equals
Definition
 (Real GDP)/(labor hours)
Term
 growth rate of labor hours equals
Definition
 [(LH2-LH1)/(LH1)]*100where LH is labor hours (current and previous)
Term
 long run growth rat equals
Definition
 (labor productivity growth)+(growth rate of labor hours)
Term
 long run growth rat eequals
Definition
 (labor productivity growth)+(growth rate of labor hours)
Term
 real wage rate equals
Definition
 =[(wage)/(CPI)]*100
Term
 net national product
Definition
 =GDP-depreciation
Term
 who releases CPI information
Definition
 Bureau of Labor Statistics
Term
 where are prices collected
Definition
 1) 87 metropolitan area2) 23,000 stores3) 50,000 landlords
Term
 core CPI
Definition
 CPI less food and energy prices
Term
 macroeconomic equilibrium
Definition
 aggregate demand equals aggregate supply
Term
 wealth
Definition
 1) one factor affecting spending2) a source of purchasing power in addition to income3) wealth is everything you own, all of your assets--different than income
Term
 how does the CPI work?
Definition
 a nominal variable used to adjust other nominal variables into real variables
Term
 is aggregate demand a schedule or a fixed number?
Definition
 schedule
Term
 investment spending
Definition
 the amount that firms spend on factories, machinery, software and such, plus the amount new families spend on new households
Term
 another name for potential GDP
Definition
 natural gross domestic product
Term
 expenditures approach
Definition
 measures the purchases of final goods and services by households, firms, governments, and the rest of the world
Term
 growth improves...
Definition
 standard of living, and is correlated with higher real wage rates
Term
 productivity
Definition
 a measure of output form a production process, per unit of input
Term
 productivity growth
Definition
 businesses are getting more efficient, getting more value from each hour of labor. however, companies needs less workers thus people are left unemployed
Term
 autonomous consumption
Definition
 "a" is the level of household spending independent of disposable income
Term
 expected real interest rate equals
Definition
 (nominal interest rate)-(expected inflation rate)
Term
 K is
Definition
 units of capital
Term
 L is
Definition
 labor hours
Term
 the pillars of economic growth
Definition
 1) labor2) capital 3) technology
Term
 capital formation is encouraged by...
Definition
 capital development
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