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Macroeconomics Ch.8
Definitions for "Principles of Macroeconomics 3rd Canadian Edition"
| Question | Answer |
|---|---|
| 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 |
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