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Macro Chapters 8-11 Flash Cards
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- 1Aggregate DemandThe quantity demanded of all goods and services (Real GDP) at different price levels, ceteris paribus.
- 2Aggregate Demand (AD) CurveA curve that shows the quantity demanded of all goods and services (Real GDP) at different price levels, ceteris paribus.
- 3Real Balance EffectThe change in the purchasing power of dollar-denominated assets that results from a change in the price level.
- 4Monetary WealthThe value of a person’s monetary assets.
- 5Purchasing PowerThe quantity of goods and services that can be purchased with a unit of money. This and the price level are inversely related: As the price level goes up (down), this goes down (up).
- 6Interest Rate EffectThe changes in household and business buying as the interest rate changes (in turn, a reflection of a change in the demand for or supply of credit brought on by price level changes).
- 7International Trade EffectThe change in foreign sector spending as the price level changes.
- 8WealthThe value of all assets owned, both monetary and nonmonetary.
- 9Exchange RateThe price of one currency in terms of another currency.
- 10AppreciationAn increase in the value of one currency relative to other currencies.
- 11DepreciationA decrease in the value of one currency relative to other currencies.
- 12VelocityThe average number of times a dollar is spent to buy final goods and services in a year.
- 13Aggregate SupplyThe quantity supplied of all goods and services (Real GDP) at different price levels, ceteris paribus.
- 14Short-Run Aggregate Supply (SRAS) CurveA curve that shows the quantity supplied of all goods and services (Real GDP) at different price levels, ceteris paribus.
- 15Short-Run EquilibriumThe condition in the economy when the quantity demanded of Real GDP equals the (short-run) quantity supplied of Real GDP. This condition is met where the aggregate demand curve intersects the short-run aggregate supply curve.
- 16Natural Real GDPThe Real GDP that is produced at the natural unemployment rate. Also, the Real GDP that is produced when the economy is in long-run equilibrium.
- 17Long-Run Aggregate Supply (LRAS) CurveA curve that represents the output the economy produces when wages and prices have adjusted to their final equilibrium levels and when workers do not have any relevant misperceptions. This curve is a vertical line at the level of Natural Real GDP.
- 18Long-Run EquilibriumThe condition that exists in the economy when wages and prices have adjusted to their (final) equilibrium levels and when workers do not have any relevant misperceptions. Graphically, long-run equilibrium occurs at the intersection of the AD and LRAS curves.
- 19Say’s LawSupply creates its own demand. Production creates enough demand to purchase all the goods and services the economy produces.
- 20Recessionary GapThe condition in which the Real GDP that the economy is producing is less than the Natural Real GDP and the unemployment rate is greater than the natural unemployment rate.
- 21Inflationary GapThe condition in which the Real GDP that the economy is producing is greater than the Natural Real GDP and the unemployment rate is less than the natural unemployment rate.
- 22Laissez-faireA public policy of not interfering with market activities in the economy.
- 23Efficiency Wage ModelsThese models hold that it is sometimes in the best interest of business firms to pay their employees wage rates that are higher than the equilibrium wage rate.
- 24Consumption FunctionThe relationship between consumption and disposable income. Used in this text, consumption is directly related to disposable income and is positive even at zero disposable income: C = C0 + (MPC)(Yd).
- 25Marginal Propensity to Consume (MPC)The ratio of the change in consumption to the change in disposable income: This = ΔC/ΔYd.
- 26Autonomous ConsumptionThe part of consumption that is independent of disposable income.
- 27Marginal Propensity to Save (MPS)The ratio of the change in saving to the change in disposable income: This = ΔS/ΔYd
- 28MultiplierThe number that is multiplied by the change in autonomous spending to obtain the change in total spending. This is equal to 1 ÷ (1 - MPC). If the economy is operating below Natural Real GDP, then this is the number that is multiplied by the change in autonomous spending to obtain the change in Real GDP.
- 29Progressive Income TaxAn income tax system in which one’s tax rate rises as taxable income rises (up to some point).
- 30Proportional Income TaxAn income tax system in which a person’s tax rate is the same regardless of taxable income.
- 31Regressive Income TaxAn income tax system in which a person’s tax rate declines as his or her taxable income rises.
- 32Budget DeficitGovernment expenditures greater than tax revenues.
- 33Budget SurplusTax revenues greater than government expenditures.
- 34Balanced BudgetGovernment expenditures equal to tax revenues.
- 35Cyclical DeficitThe part of the budget deficit that is a result of a downturn in economic activity.
- 36Structural DeficitThe part of the budget deficit that would exist even if the economy were operating at full employment.
- 37Public DebtThe total amount that the federal government owes its creditors.
- 38Fiscal PolicyChanges in government expenditures and/or taxes aimed at achieving economic goals, such as low unemployment, stable prices, and economic growth.
- 39Expansionary Fiscal PolicyIncreases in government expenditures and/or decreases in taxes in order to achieve particular economic goals.
- 40Contractionary Fiscal PolicyDecreases in government expenditures and/or increases in taxes in order to achieve economic goals.
- 41Discretionary Fiscal PolicyDeliberate changes in government expenditures and/or taxes in order to achieve economic goals.
- 42Automatic Fiscal PolicyChanges in government expenditures and/or taxes that occur automatically without (additional) congressional action.
- 43Crowding OutThe decrease in private expenditures that occurs as a consequence of increased government spending or the need to finance a budget deficit.
- 44Complete Crowding OutA decrease in one or more components of private spending that completely offsets the increase in government spending.
- 45Incomplete Crowding OutA decrease in one or more components of private spending that only partially offsets the increase in government spending.
- 46Marginal (Income) Tax RateThe change in a person’s tax payment divided by the change in taxable income: ΔTax payment ÷ ΔTaxable income.
- 47Laffer CurveThe curve, named after an economist, that shows the relationship between tax rates and tax revenues. According to this curve, as tax rates rise from zero, tax revenues rise, reach a maximum at some point, and then fall with further increases in tax rates.
- 48Tax BaseIn terms of income taxes, the total amount of taxable income. Tax revenue = This x (average) Tax rate
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