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Macroeconomics 6-8
chapters 6-8
66
Economics
Undergraduate 1
04/16/2010

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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 services
2) 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 capacity
2) 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
wage adjusted according to inflation
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 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
Term
better technological change
Definition
1) more education
2) more capital formation
3) 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 income
2) 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-C
negative is dissavings
Term
MPS
Definition
Marginal propensity to save
2) MPC+MPS=1
for 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 products
ex: social security
Term
exports
Definition
are goods and services produced domestically and purchased by foreigners
Term
net exports equals
Definition
1) NX=X-M
2) x is exports
3) 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)]*100
where 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 area
2) 23,000 stores
3) 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 spending
2) a source of purchasing power in addition to income
3) 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) labor
2) capital
3) technology
Term
capital formation is encouraged by...
Definition
capital development
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