Consumption
This effect measures the change in consumption associated with a change in wealth at a new real interest rate.
What is the wealth effect?
The extra output produced by an additional unit of capital used in production when the quantities of all other inputs are held fixed.
What is the marginal product of capital?
The additional tax collected by the government on and additional dollar of income.
What is the marginal tax rate?
Money as a medium of exchange, unit of account, store of value, and the standard of deferred payment.
What are the functions of money?
Employed Workers + Unemployed Workers
What is the labor force?
This effect measures the response of consumption in each period caused by a shift in the real interest rate measured along the original indifference curve.
What is the substitution effect?
A production function follows this law then the marginal product of an input declines as the level of the input increases, c.p.
What is the Law of Diminishing Returns?
The sum of government expenditures, net transfers, and interest payments.
What is the government's uses of funds?
The central bank system established by Congress in 1913 that is in charge of monetary policy in the U.S.
What is the Federal Reserve System?
The type of unemployment that is caused by technology improvements and innovation.
What is structural unemployment?
This variable measures the additional consumption that occurs in response to a one unit increase in permanent income.
What is the marginal propensity to consume out of permanent income?
The level of the capital stock that is consistent with profit-maximization by the firm.
What is the desired stock of capital (K*)?
The sum of tax receipts and bonds issued.
What is the government's sources of funds?
The equation
M/P = sqrt((c*w)/(2*i)
What is the square-root rule of money demand?
The unemployment rate that occurs when cyclical unemployment rate is zero or when the economy is operating at full employment.
What is the natural rate of unemployment?
The idea that households can borrow or lend in such a way that their consumption pattern is less volatile than their income stream.
What is consumption smoothing?
Costs that the firm will incur when they devote resources to the planning and installation of new equipment.
What are adjustment costs?
An accounting relationship listing the sources and uses of funds by the government.
What is the government budget constraint?
The ratio
(1+rr)/(rr+k)
What is the money multiplier?
The labor market model that assumes that prices and wages are sticky.
What is the Keynesian Labor market model?
The constant amount of income with the property that the household's wealth is the same whether it is measured by permanent or actual income.
What is permanent income?
The idea that firms consider multiple periods in the future when making investment decisions.
What is the forward-looking nature of investment?
The theory that governments will primarily use debt to finance transitory spending, while taxes will be used mainly o finance permanent spending.
What is tax smoothing?
In an economy with an arbitrary number of markets, the sum of all the excess demands in the economy must be zero.
What is Walras' Law?
The labor market model that assumes that market always clear and that everyone has the correct expectations about the price level.
What is the Classical Labor Market model?