Long-Run Economic Growth
The mathematical rule used to calculate the approximate number of years required for an economy's real GDP to double.
The rule of 70
Financial institutions such as commercial banks, mutual funds, and pension funds that aggregate funds from depositors and lend to borrowers.
What are Financial Intermediaries?
The real interest rate formula.
What is Real Rate = Nominal Rate - Expected Inflation?
The proportion of an additional unit of disposable income that consumers spend rather than save.
What is the Marginal Propensity to Consume?
An economic condition combining stagnant economic growth, high unemployment, and high inflation, often caused by negative supply shocks.
What is Stagflation?
The aggregate relationship showing how real GDP depends on the quantities of physical capital, labor, human capital, and technology.
What is the Aggregate Production Function?
In a closed economy with no foreign trade or government, total national savings (S) must equal this macro aggregate.
What is Investment Spending (I)?
The macroeconomic proposition that expected changes in inflation result in an equal point-for-point change in the nominal interest rate.
What is the Fisher Effect?
The simple spending multiplier formula that measures the ultimate change in total real output from an initial change in autonomous spending.
1/ 1 - MPC
The aggregate supply curve that is perfectly inelastic (vertical) at the economy's potential output (YP).
What is the Long-Run Aggregate Supply (LRAS) Curve?
The accounting procedure that separates the contributions of physical capital, labor, and total factor productivity (TFP) to overall GDP growth.
What is Growth Accounting?
Paper claims that entitle the buyer to future income from the seller, including loans, stocks, and bonds.
What are Financial Assets?
The reduction in private investment spending caused by government borrowing driving up real interest rates in the loanable funds market.
What is Crowding Out?
The three primary reasons (Real Wealth Effect, Interest Rate Effect, Net Export Effect) explaining why this aggregate curve slopes downward.
What is the Aggregate Demand (AD) Curve?
Sticky nominal wages and inflexible input prices in the short run explain why this macroeconomic curve slopes upward.
What is the Short-Run Aggregate Supply (SRAS) Curve?
The economic hypothesis stating that international differences in real GDP per capita narrow over time as poorer nations grow faster.
What is Convergence?
The main structural purpose of this economy-wide system is to channel excess funds from net savers to net borrowers.
What is the Financial System?
An increase in private saving propensity or an influx of foreign capital shifts this loanable funds curve to the right.
What is the Supply of Loanable Funds?
While a change in the aggregate price level causes a movement along the AD curve, changes in consumer expectations or fiscal policy cause this.
What is a Shift in Aggregate Demand?
The intersection point where the quantity of aggregate output demanded equals the quantity of aggregate output supplied in the short run.
What is Short-Run Macroeconomic Equilibrium?
Technological innovation or increases in human capital cause this structural change, as opposed to capital accumulation per worker.
What is a Shift of the Aggregate Production Function?
In an open economy, total investment spending I is equal to national savings S plus this variable representing international capital flows.
What are net capital inflows (NCI)?
An increase in perceived business profitability or tax credits for new capital expenditures shifts this curve rightward.
What is the Demand for Loanable Funds?
The four primary expenditures that sum up total aggregate demand in an open economy.
What are Consumption (C), Investment (I), Government Purchases (G), and Net Exports (X - IM)?
A negative supply shock caused by surging key commodity prices shifts this curve to the left.
What is the Short-Run Aggregate Supply (SRAS) Curve?