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macro 2
| Question | Answer |
|---|---|
| Consumption | Household spending on final goods and services, notably excluding the purchase of new homes |
| Consumption Smoothing | The practice of maintaining a steady or smooth path for your consumption over time, often driven by the principle of diminishing marginal benefit |
| Rational Rule for Consumers | This rule states that you should consume more today if the marginal benefit (MB) of $1 spent today is greater than or equal to the MB of $1 in the future plus the interest earned |
| Marginal Propensity to Consume (MPC) | he fraction of each dollar of income that households spend on consumption |
| formula for MPC | change in consumption divided by the change in income |
| Marginal Propensity to Save (MPS) | The fraction of each additional dollar of income that is saved, |
| formula for MPS | change in saving divided by the change in income |
| MPC + MPS = | 1, indicating that every additional dollar of income is either spent or saved |
| Saving In a macro sense | these savings are used by the financial sector to lend for investment projects |
| Dissavings | This occurs when consumption is greater than income |
| Permanent Income | An estimate of your long-term income |
| Permanent Income Hypothesis | The theory that people choose their consumption based on their permanent income rather than their current, temporary income |
| Disposable Income | The amount of money available to spend after taxes are subtracted from pre-tax income |
| Precautionary Saving | Saving specifically for emergencies or due to uncertainty in the economy |
| Hand-to-Mouth Consumers | Individuals who live paycheck to paycheck and spend their current income immediately rather than smoothing consumption. For these individuals, the MPC is typically 1 for any income type |
| income effect For savers/lenders, | a higher interest rate means more interest income, which can increase consumption |
| income effect For borrowers/debtors | a higher interest rate means higher interest payments, which decreases consumption |
| Consumer Confidence | The level of optimism or pessimism people feel about the economy. Optimism leads to higher consumption, while pessimism leads to lower consumption |
| Current levels of consumption tend to be around _____ of GDP, making the current level of consumption _____ to forecast than future changes in consumption. | two-thirds, easier |
| _____ people earn more than the median income, and _____ people earn less than the median income. | Half of; half of |
| Economists prefer using median income rather than mean income because median income measures the _____ of income and is thus less influenced by _____, whereas the mean can be moved by extreme values. | halfway point; extreme values |
| Investment is responsible for driving the business cycle because consumption and government spending tend to be: | more stable over time in their contributions to GDP |
| Future value in t years = present value × (1 + r)t is defined as the: | compounding formula. |
| Improvement in technology increases the expected profit and shifts the demand for loanable funds curve: | rightward and increases the real interest rate |
| a higher real interest rate | increases the opportunity cost of consuming today |
| Depreciation is a result of | aging, wear and tear, and obsolescence |
| marginal principle | evaluating whether the next unit of something is worth acquiring |
| the cost-benefit principle | evaluating the present‑value stream of benefits from an action and decide whether this is greater than or less than the up‑front costs of the action |
| the opportunity‑cost principle | the "forgone cost " what you could be doing or buying instead |
| key word for identifying marginal principle | one more |
| key word for identifying cost-benefit principle | worth more than |
| key word for identifying opportunity‑cost principle | instead |
| studies show that there is a ____ correlation between capital per worker ad output per worker | positive |
| suppliers of loanable funds | savers |
| demanders of loanable funds | investors |
| Rational Rule for Consumers | MB of $1 today ≥ MB of $1 in future+interest in future |
| In the bond market, what is 'Term Risk'? | the risk that interest rates will rise, making the fixed interest rate of your existing bond less attractive |
| What is the core claim of the Efficient Market Hypothesis (EMH) | stock prices always reflect all publicly available information making it nearly impossible to consistently 'beat the market' |
| only _____ capital accounts for GDP investment | physical |
| A bank's payment services include | direct deposit and the ability to pay bills |
Created by:
Zariii