Vocab
The sum of all spending from four sectors of the economy
Aggregate Spending (GDP)
the top of a business cycle where an expansion has ended.
peak
he market for dollars that are available to be borrowed for investment projects. Equilibrium in this market is determined at the real interest rate where the dollars saved (supply) is equal to the dollars borrowed (demand)
Market for loanable funds
exists when government spending exceeds the revenue collected from taxes
. Budget deficit
this inflation is the result of stronger C from all sectors of AD as it continues to increase in the upward sloping range of AS. The PL begins to rise and inflation is felt in the economy.
Demand-pull inflation
the value of current production at the current prices
Nominal GDP
the price index that measures the average price level of the items in the base year market basket.
Consumer Price Index (CPI
deliberate changes in government spending and net tax collection to affect economic output, unemployment, and the price level and is typically designed to manipulate AD to “fix’ the economy.
Fiscal Policy
: increases in government spending or lower net taxes meant to shift the aggregate expenditure function upward and shift AD to the righ
. Expansionary Fiscal Policy
a summary of the payments received by the U.S. from foreign countries and the payments sent by the U.S. to foreign countries.
Balance of Payments statement:
a collection of goods and services used to represent what is consumed in the economy
Market Basket
today’s income measured in base year dollars.
Real income
if price levels do not change, especially downward, with changes in AD, then prices are thought of as inflexible. Keynesians believe the price level does not usually fall with Contractionary policy.
Sticky prices
the quantity of output that can be produced per worker in a given amount of time.
Productivity
decreases in government spending or higher net taxes meant to shift the aggregate expenditure function downward and shift AD to the left
Contractionary fiscal policy
the price index that measures the average price level of the goods and services that make up GDP
. GDP price deflator
the change in consumption caused by a change in disposable income, or the slope of the consumption function. _____ = ▲C/▲DI.
Marginal Propensity to Consume: (MPC)
mechanisms built into the tax system that automatically regulate, or stabilize, the macroeconomy as it moves through the business cycle by changing net taxes collected by the government. These stabilizers increase a deficit during a recessionary period and increase a budget surplus during an inflationary period, without any discretionary change on the part of the government.
Automatic stabilizers
the amount of knowledge and skills that labor can apply to the work they do and the general level of health that the labor force enjoys.
Human capital
a system in which only a fraction of the total money deposited in banks is held in reserve as currency
Fractional Reserve Banking:
the periodic rise and fall (in four phases) of economic activity
Business cycle
the change in saving caused by a change in disposable income, or the slope of the saving function. ____= ▲S/▲DI
Marginal Propensity to Save (MPS)
when the government borrows funds to cover a deficit, the interest rate increases and households and firms are pushed out of the market for loanable funds.
Crowding out effect
a period of time during which the prices of goods and services are changing their respective markets, but the input prices have not yet adjusted to those changes in the product markets.
Short Run
this measures the maximum amount of new checking deposits that can be created by a single dollar of excess reserves.
Money Multiplier