ECON 101 Module 9/10 SDSU Cullivan

question

Aggregate Expenditures

answer

The sum of all expenditures made in an economy on C+I+G+NX. AE equals real GDP

question

Who developed the AE Model?

answer

John Maynard Keynes

question

AE Model

answer

model that relates income and expenditure in an economy such that total expenditures in the economy will be equal to total output.

question

Real GDP (Y)

answer

a measure of the constant dollar value of all final goods and services produced in a country at a fixed period of time.

question

MPC

answer

Marginal prosperity to consume, what you choose to spend your money on

question

MPS

answer

Marginal prosperity to save, what you choose to save your money on

question

Disposable Income (DI)

answer

the amount of income available to spend or save after taxes have been paid; calculated as the income (Y) minus taxes (T)

question

Consumption schedule

answer

a graph showing the relationship between income and consumption

question

Equilibrium line

answer

the 45 degree line thru the origin at points which represents AE is equal to Real GDP or Y

question

Autonomous Consumption (A)

answer

the level of consumption expenditure when income is equal to 0. Autonomous consumption is funded by drawing on savings or by borrowing.

question

Savings schedule

answer

a graph showing the relationship between income and savings

question

Investment Demand

answer

the negative relationship between the quantity of new physical capital demanded by firms and prevailing interest rate

question

Expected rate of return

answer

an anticipated increase in profit resulting from additional investment; expressed as a % of monetary cost of the additional investment

question

Optimization Rule for an activity (review)

answer

MB>=MC, do it
MB<MC, dont do it

question

Optimization Rule for Investment (Review)

answer

rate of return >= cost of investment, invest
rate of return < cost of investment, don't

question

Government purchases schedule

answer

in the aggregate expenditures model, a horizontal line showing the relationship between G and real GDP

question

NX Purchases schedule

answer

in AE model, a line showing the relationship between NX and real GDP

question

Expenditure Multiplier

answer

the effect that a $1 change in expenditure has on a real GDP; calculated as the ratio of the total change in real GDP due to change in initial expenditure

question

Multiplier Effect

answer

the concept that an additional dollar of expenditures will result in the creation of more than one dollars worth of real GDP

question

Tax Multiplier

answer

the effect that a $1 change in taxes has on real GDP

question

Recessionary Gap

answer

The difference between expenditure when real GDP is below the full employment level and the level of expenditure at full employ. real GDP

question

Inflationary Gap

answer

The difference between expenditure when real GDP is ABOVE the full employment level and the level of expenditure at full employ. real GDP

question

Output gap

answer

the difference, or gap, between current real GDP and full employment real GDP

question

Interest Rate Effect

answer

when price level rises the demand for money increases which causes interest rates to rise, resulting in a decrease in investment and consumption spending thus reducing the aggregate quantity of real GDP.

question

Foreign Purchases Effect

answer

when price level rises, the quantity of exports decreases and the quantity of imports increases, resulting in a decrease in net exports, thus reducing the aggregate quantity of real GDP demanded.

question

Real Balances Effect

answer

when the price level rises the real value of savings falls and people are less willing or able to buy goods and services, thus reducing the aggregate quantity of real GDP demanded

question

When there is a decrease in the price level, all else held equal net exports will

answer

rise, which causes an increase in the quantity of real GDP demanded.

question

Sticky Wages

answer

the idea that nominal wages tent to adjust slowly in response to changes in the market

question

Demand-Pull Inflation

answer

inflation that occurs due to an increase in aggregate demand

question

cost-push inflation

answer

inflation that occurs due to decrease in aggregate supply

1 of 30

question

Aggregate Expenditures

answer

The sum of all expenditures made in an economy on C+I+G+NX. AE equals real GDP

question

Who developed the AE Model?

answer

John Maynard Keynes

question

AE Model

answer

model that relates income and expenditure in an economy such that total expenditures in the economy will be equal to total output.

question

Real GDP (Y)

answer

a measure of the constant dollar value of all final goods and services produced in a country at a fixed period of time.

question

MPC

answer

Marginal prosperity to consume, what you choose to spend your money on

question

MPS

answer

Marginal prosperity to save, what you choose to save your money on

question

Disposable Income (DI)

answer

the amount of income available to spend or save after taxes have been paid; calculated as the income (Y) minus taxes (T)

question

Consumption schedule

answer

a graph showing the relationship between income and consumption

question

Equilibrium line

answer

the 45 degree line thru the origin at points which represents AE is equal to Real GDP or Y

question

Autonomous Consumption (A)

answer

the level of consumption expenditure when income is equal to 0. Autonomous consumption is funded by drawing on savings or by borrowing.

question

Savings schedule

answer

a graph showing the relationship between income and savings

question

Investment Demand

answer

the negative relationship between the quantity of new physical capital demanded by firms and prevailing interest rate

question

Expected rate of return

answer

an anticipated increase in profit resulting from additional investment; expressed as a % of monetary cost of the additional investment

question

Optimization Rule for an activity (review)

answer

MB>=MC, do it
MB<MC, dont do it

question

Optimization Rule for Investment (Review)

answer

rate of return >= cost of investment, invest
rate of return < cost of investment, don't

question

Government purchases schedule

answer

in the aggregate expenditures model, a horizontal line showing the relationship between G and real GDP

question

NX Purchases schedule

answer

in AE model, a line showing the relationship between NX and real GDP

question

Expenditure Multiplier

answer

the effect that a $1 change in expenditure has on a real GDP; calculated as the ratio of the total change in real GDP due to change in initial expenditure

question

Multiplier Effect

answer

the concept that an additional dollar of expenditures will result in the creation of more than one dollars worth of real GDP

question

Tax Multiplier

answer

the effect that a $1 change in taxes has on real GDP

question

Recessionary Gap

answer

The difference between expenditure when real GDP is below the full employment level and the level of expenditure at full employ. real GDP

question

Inflationary Gap

answer

The difference between expenditure when real GDP is ABOVE the full employment level and the level of expenditure at full employ. real GDP

question

Output gap

answer

the difference, or gap, between current real GDP and full employment real GDP

question

Interest Rate Effect

answer

question

Foreign Purchases Effect

answer

when price level rises, the quantity of exports decreases and the quantity of imports increases, resulting in a decrease in net exports, thus reducing the aggregate quantity of real GDP demanded.

question

Real Balances Effect

answer

when the price level rises the real value of savings falls and people are less willing or able to buy goods and services, thus reducing the aggregate quantity of real GDP demanded

question

When there is a decrease in the price level, all else held equal net exports will

answer

rise, which causes an increase in the quantity of real GDP demanded.

question

Sticky Wages

answer

the idea that nominal wages tent to adjust slowly in response to changes in the market

question

Demand-Pull Inflation

answer

inflation that occurs due to an increase in aggregate demand

question

cost-push inflation

answer

inflation that occurs due to decrease in aggregate supply

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