Term
Three Pairs of Economic Aggregates |
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Definition
1) Income & Consumption (I & S)
2) Interest Rate & Investment
3) Changes Spending (D) & Changes Output (Production) |
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Term
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Definition
Spending
One of two things that can be done with Income |
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Term
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Definition
Not spending ($ remaining after consumption);
Part of Disposable Income (DI) not spent.
$ not spent for a specifc period from a specific amount of Income.
One of only two things that can be done w/ Income. |
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Term
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Definition
Inevitable Payments i.e. Wages/Salary, Rents or Interest rcv'd.,
Flow of $ (purchasing power) per unit of time
derived from use of human or property resources. |
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Term
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Definition
line on a graph that bisects the 90 degree right angle
each point on the line represents
Consumption (C) & Disposable Income (DI)
in a direct (positive) relationship |
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Term
Describe the Vertical Distance between 45 degree line & the Consumption (C) line
- and -
What is represented when move rightward on the horizontal line
and
what is represented when move leftward? |
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Definition
Vertical distance Increases as move rightward along the horizontal line;
- and -
Vertical distance Decreases as move leftward along the horizontal line. |
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Term
What is one of the best established relationships in macroeconomics? |
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Definition
Other-things-equal: Ceteris paribus
an economic assumption.
Relationship between
Income (I) and Savings (S) |
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Term
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Definition
Decreases in spending
either by Consumers, Consumption spending (C)
-- or --
by gov't buying producing (Ig) |
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Term
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Definition
Saving (S) =
Disposable Income (DI) Minus Consumption (C)
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Term
What is the most significant factor determining a nation's levels of Consumption & Saving? |
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Definition
Disposable Income (DI) is the most significant factor
determining a nation's levels of Consumption & Saving. |
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Term
Discuss the consumption schedule?
Its function?
What it captures?
How it works?
Why it is important to economists? |
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Definition
Consumption schedule is a graph
shows direct relationship between (C) & (DI)
(C) = Consumption; (DI) = Disposable Income
Will capture aggregate Household behavior i.e.
Increase Spending as DI income increases
-- and --
Spend a larger portion of a small disposable income
than of a large disposable income
Important: #s be illustrated/brought to life |
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Term
Uses of the 45 degree line -- |
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Definition
Used as an instrument to derive a final value
with use of other curves (like Consumption curve) |
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Term
Discuss the slope of the 45 degree line in a
Consumption Curve (Fig. 27.1)
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Definition
Slope is always positive --
Less than 1.
Slope is = to "marginal propensity to consume"
which is how much a specific level of income will make you / or allow you to consume/spend |
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Term
45 degree line: What is it used for/its purpose?
Pg 548 19e Fig 27.1 |
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Definition
Used only to illustrate a relationship or for theoretical purposes.
It never shows an actual relationship between 2 factors.
In the case of Consumption: Line is used only to show where Consumption = Income -- given a derived consumption curve |
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Term
What is the immediate cause of recession? |
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Definition
People stop Spending.
This sets off other behavior:
Spending stops --> Businesses stop Producing --> (Profits drop) --> Bizs begin layoffs of Labor --> Fewer workers --> Lower output --> GDP trends down --> Unemployment rises |
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Term
How does macroeconomics explain the Recession in the Business cycle?
What suggestions does it make to fix this problem?
1 of 2 |
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Definition
Macroeconomics offers several approaches.
1) Classical Approach - based on theories, ideas etc. from 1700's / before Industrial Revolution began. Economy will fix itself / move forward / trend to growth; no interference / no gov't intervention is needed.
Classicists dispute the existence of recession -- Proof: Say's Law ( if everything produced in economy is sold, there is enough $ in the economy via products' income or Profits to buy all that is produced ). |
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Term
How does macroeconomics explain the Recession in the Business cycle?
What suggestions does it make to fix this problem?
2 of 2 |
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Definition
If it appears that a Recession occurs in the economy, the economic circumstances that look like recession won't last;
"Demand always chases Supply."
Economic issues always fix themselves shortly/soon, so don't touch anything / could cause problem if do.
"Supply creates its own Demand." |
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Term
Why is the Supply (S) line on a S-D (Demand) curve a vertical line? p 548, Fig. 27-1 "Consumption in '98"?
What causes this phenomena?
NOTE: Fix this -- find correct language for Term card |
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Definition
Qe is equal to Production; Economy is producing as much quantity as it can. Qe = capacity. |
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Term
Chap 27 19e / Chap 28 20e |
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Definition
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Term
Discuss Say's law
Who -- What -- When -- Where -- How |
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Definition
Say = Fra. economist -- 1700's - dev. theo. around time of Indust. Revo. -- sugg. gov't intervention in business causes problems tha AOwise would not occur
to Say, a classical economist, there is no such thing as recession --
- expression of laissez-faire economics
if there is economic activity that looks like recession, economy will simply act to resolve it w/out gov't. |
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Term
Discuss how Great Depression 1930's tested
Say's Law?
Class Notes 10/30/14 |
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Definition
In 2 yrs. U.S. GDP dropped 27% -- nearly 1/3 of economy evaporated --> 1 in 4 were out of work before it ended
- lasted > 10 yrs. -- Prices were "sticky"
Huge unemployment
Production not operating @ full capacity
Long-run (time) did not help economy to correct
Classical theory - Say's Law failed |
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