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Macroeconomics Ch.8

Definitions for "Principles of Macroeconomics 3rd Canadian Edition"

QuestionAnswer
KEYNESIAN MODEL ASSUMPTION In the short run firms meet the demand for their products at preset prices
- menu costs the costs of changing prices
- PLANNED AGGREGATE EXPENDITURE (PAE) TOTAL PLANNED SPENDING ON FINAL GOODS AND SERVICES
- consumption function the relationship between consumption spending and its determinants, such as disposable (after-tax) income
- WEALTH EFFECT THE TENDENCY OF CHANGES IN ASSET PRICES TO AFFECT HOUSEHOLDS WEALTH AND THUS THEIR SPENDING ON CONSUMPTION GOODS AND SERVICES
- Marginal propensity to consume (MPC the amount by which consumption rises when disposable income rises by $1; we assume that 0 < MPC < 1
- Average propensity to consume (APC) consumption divided by disposable income
- Short –run equilibrium output the level of output at which output Y equals PAE. The level of output that prevails during the period in which prices are predetermined. Example: Y = PAE
- INCOME-EXPENDITURE MULTIPLIER THE EFFECT OF A ONE UNIT INCREASE IN AUTONOMOUS EXPENDITURE ON SHORT-RUN EQUILIBRIUM OUTPUT
- Stabilization policies government policies that are used to affect PAE with the objective of eliminating output gaps
- Expansion policies government policy actions intended to increase planned spending and output
- Contradictory policies government policy actions designed to reduce planned spending and output
- DISCRETIONARY FISCAL POLICY CHANGES IN GOVERNMENT SPENDING AND TAXATION DELIBERATELY MADE TO STABILIZE PLANNED AGGREGATE EXPENDITURE
- automatic stabilizers provisions in the law that imply automatic increases in government spending or decreases in taxes when real output declines
- marginal propensity to import the amount by which imports rise when incme rises by $1
- economy-wide marginal tax rate the amount by which taxes rise when income rises by $1
Created by: aliciab
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