shows total demand for goods and services C+I(r)+G+Nx

changes in perceived wealth influence consumer spending and overall economic activity impacting AD (P goes down, consumption goes up, Y is greater)

changes in interest rates influence borrowing, spending, and overall economic activity (P goes down, people have more money left over so they save more which lowers interest rates so investing/borrowing is cheaper so investing also increase)

when P goes down, more money left behind so supply of goods increase and price of goods decrease so other countries would buy our chepaer goods increasing Nx

anything that changes in C (stock market boom/crash, preferences), I (new tech, expectations, intrest rates, policy), G (goc spending), Nx (boom/recessions in other countries, appreciation/depreciation reuslting from international speculation in exchange)

nominal wages are sticky in the short run, they adjust sluggishly due to labor contracts and social norms so they're often set in advance based off of Pe

Marginal propensity to consume

fraction of extra income that households consume rather than save deltaC/deltaY

each dollar increase in G can generate more than a $1 increase in AD deltaY=deltaCIRorNx/(1-MPC)

natural rate of output/potential output/full-employment output

the amount of output the economy produces when unemployment is at its natural rate determined by the economy's stocks of labor, capital, natural resources, and technology (=LRAS)

theory of liquidity preference

interest rate adjusts to bring money supply and demand into balance under the assumption expected rate of inflation is constant (interest rate effect?)

purchase of foreign assets by domestic residents (minus the purchase of domestic assets by foreigners)

saving and investment equations in an open economy

Y=C+I+G+Nx, S=Y-C-G (Y-C-G=I+Nx and S=I+Nx), Nx=NCO (S=I+NCO)

increase in the value of a currency measured by the amount of foreign currency it can buy

decrease in the value of a currency measured by the amount of foreign currency it can buy

rate at which a person can trade the goods and services of one country for the goods and services of another =(nominalexchangerate*domesticprice)/foreignprice)

nominal exchange rate

foreign currency per unit of domestic currency

purchasing pwoer parity

a theory of exhange rates that says a unit of any given currency should be able to buy the same quantity of goods in all countries

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macro quiz 5

Term	Definition
aggregate demand	shows total demand for goods and services C+I(r)+G+Nx
wealth effect	changes in perceived wealth influence consumer spending and overall economic activity impacting AD (P goes down, consumption goes up, Y is greater)
interest rate effect	changes in interest rates influence borrowing, spending, and overall economic activity (P goes down, people have more money left over so they save more which lowers interest rates so investing/borrowing is cheaper so investing also increase)
exchange rate effect	when P goes down, more money left behind so supply of goods increase and price of goods decrease so other countries would buy our chepaer goods increasing Nx
shifts in AD	anything that changes in C (stock market boom/crash, preferences), I (new tech, expectations, intrest rates, policy), G (goc spending), Nx (boom/recessions in other countries, appreciation/depreciation reuslting from international speculation in exchange)
Short run aggregate supply	Y=Ybar+a(P-EP)
Long run aggregate supply	Ybar=AF(K, L, H, N)
sticky wage theory	nominal wages are sticky in the short run, they adjust sluggishly due to labor contracts and social norms so they're often set in advance based off of Pe
Marginal propensity to consume	fraction of extra income that households consume rather than save deltaC/deltaY
multipler effect	each dollar increase in G can generate more than a $1 increase in AD deltaY=deltaCIRorNx/(1-MPC)
natural rate of output/potential output/full-employment output	the amount of output the economy produces when unemployment is at its natural rate determined by the economy's stocks of labor, capital, natural resources, and technology (=LRAS)
theory of liquidity preference	interest rate adjusts to bring money supply and demand into balance under the assumption expected rate of inflation is constant (interest rate effect?)
Net capital outflow	purchase of foreign assets by domestic residents (minus the purchase of domestic assets by foreigners)
saving and investment equations in an open economy	Y=C+I+G+Nx, S=Y-C-G (Y-C-G=I+Nx and S=I+Nx), Nx=NCO (S=I+NCO)
appreciation	increase in the value of a currency measured by the amount of foreign currency it can buy
depreciation	decrease in the value of a currency measured by the amount of foreign currency it can buy
real exchange rate	rate at which a person can trade the goods and services of one country for the goods and services of another =(nominalexchangerate*domesticprice)/foreignprice)
nominal exchange rate	foreign currency per unit of domestic currency
purchasing pwoer parity	a theory of exhange rates that says a unit of any given currency should be able to buy the same quantity of goods in all countries

Created by: allison_07

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