Business Cycle Properties
The lowest point of the business cycle.
What is a trough?
The value on a given date of a future payment or series of future payments, discounted to reflect the time preferences of economic agents.
A variable that has a constant mean over time.
What is a stationary variable?
The limit on the consumption bundle that a consumer can afford in each period of life.
What is a wealth constraint?
The name of the variable
lambda
in the net investment equation.
What is the adjustment parameter?
The fraction that the government takes of a person's earnings or a firm's profits.
What is the marginal tax rate?
The highest point of a business cycle.
What is a peak?
The amount stated on a bond that the lender agrees to give to the government or firm.
What is the face value?
A variable that increases or decrease over time and does not return to an average value.
What is a non-stationary variable?
A household that saves in the first period and consumes less than its current income.
What is a lending household?
The formula P x MPK = UK
What is the profit-maximizing condition?
The idea that people with higher income pay a higher marginal tax rate.
What is a progressive marginal tax rate?
An increase in real GDP.
The time when the bond expires and the government or firm has to pay back the face value of the bond.
What is the maturity date?
A variable that moves in the opposite direction of aggregate economic activity.
What is a countercyclical variable?
A household that consumes more than its current income in the first period.
What is a borrowing household?
The reason that the marginal product of capital decreases as the amount of capital increases.
What is the law of diminishing returns?
The ratio of tax receipts over income.
What is the average tax rate?
A decrease in real GDP for at least two consecutive quarters.
What is a recession?
The interest payments an individual earns while holding a bond.
What is a coupon payment?
A variable whose peaks and troughs occur at about the same time as the corresponding business cycle's peaks and troughs.
What is a coincident variable?
The slope of the indifference curve (aka. the rate at which a household trades current for future consumption).
What is the marginal rate of substitution?
The slope of a production function with capital on the x-axis and output on the y-axis.
What is the marginal product of capital?
The amount of the government budget deficit if the economy was operating at potential GDP.
What is the full-employment deficit?
A positively-sloped line displaying potential GDP over time.
What is a trend?
A bond with infinite life time (aka. a bond that does not mature).
What is a consol bond?
An economic variable that tends to move in advance of real GDP.
What is a leading variable?
At this point, the slope of the indifference curve equals the slope of the wealth constraint.
What is the equilibrium point?
The point at which gross investment is equal to the replacement rate of capital.
Government spending that occurs in unexpected circumstances.
What is transitory government spending?