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