Supply and Demand
The law of demand states this.
What is an increase in price leads to a decrease in the quantity demanded?
The relationship between MPC and MPS.
What is 1 - MPC = MPS?
The relationship between Savings and Investment.
What is Savings = Investment?
This term makes up the majority of aggregate demand.
What is consumption?
The intersection of the demand and supply curve.
What is equilibrium?
The consumption function.
What is C = a + MPC x YD?
An increase in expected future inflation drives up
the nominal interest rate, leaving the expected real interest rate unchanged.
What is the Fisher Effect?
This curve shows the total quantity of goods and services that all firms in an economy are willing and able to produce at different price levels.
What is the short-run aggregate supply curve?
As income increases, the demand for this good decreases.
What is an inferior good?
Unplanned changes in inventories that occur
when actual sales are more or less than businesses expected.
What is unplanned inventory investment?
Increased government borrowing raises interest rates, reducing private investment.
What is crowding out?
Nominal wages that are slow to fall even in the face of high unemployment and slow to rise even in the face of labor shortages.
What is sticky wages?
As income increases, the demand for this good increases.
What is a normal good?
The factors that shift aggregate consumption.
What is changes in aggregate wealth, changes in expected future income, Change in the size of the existing stock of physical capital, Fiscal Policy, and Monetary Policy?
A country has a trade deficit of $25 million, meaning it imports more than it exports.
What is Net Capital Inflow?
Potential output is the level of real GDP the economy
would produce if all prices, including nominal wages, were fully flexible.
What is the long-run aggregate supply curve?
A decrease in the cost of honey will lead an decrease in the quantity demanded of maple syrup.
What is a substitute?
C=500+0.8YD
If disposable income is $2,000 billion, calculate the consumption.
C=500+0.8(2,000)
C=500+1,600=2,100
In 2025, the country of Investopia experienced several international financial transactions. Foreign investors purchased $250 billion worth of Investopian government bonds, and foreign companies built new factories in Investopia valued at $70 billion. At the same time, Investopian firms invested $180 billion abroad. Calculate Net Capital Inflows.
Net Capital Inflow=Capital Inflows−Capital Outflows
Net Capital Inflow=320−180=140
The relationship between the Fisher effect and Aggregate demand.
What is when people expect higher inflation, nominal interest rates rise to maintain the same real return?