CHAP 9

Question 1

aggregate demand?

Answer 1

total quantity of output demanded at alternative prices during a particular time period, ceteris paribus

Question 2

aggregate supply?

Answer 2

total quantity of output producers are willing and able to supply at alternative price levels during a particular time period, ceteris paribus

Question 3

equilibrium

Answer 3

combination of price level and real output is compatible with both aggregate demand and aggregate supply

Question 4

What are the four components of aggregate demand?

Answer 4

Consumption (C), Investment (I), Government Spending (G), and Net Exports (X-M)

Question 5

Consumption?

Answer 5

spending by consumers on final goods and services

Question 6

disposable income?

Answer 6

money after taxes left for consumers, personal income-personal taxes

Question 7

saving?

Answer 7

part of disposable income not spent on current consumption

Question 8

Average propensity to consume? what is its letter representation?

Answer 8

APC, the amount of total disposable income spent on consumer goods and services

Question 9

Marginal propensity to consume? what is its letter representation?

Answer 9

MPC, tells us how much consumer spending will change in response to changes in disposable income
- so if for every dollar you make, you spent 80 cents of it, the MPC is 0.8 because it is 0.80 divided by 1

Question 10

Marginal Propensity to save? what is its letter representation?

Answer 10

MPS, amount of each additional dollar of income that is used for saving

Question 11

wealth effect?

Answer 11

change in consumer spending caused by change in the value of owned assets
- more money you get more you spend, less you get less you spend

Question 12

autonomous consumption?

Answer 12

the minimum level of consumption or spending that must take place even if a consumer has no disposable income, such as spending for basic necessities

Question 13

consumption function?

Answer 13

math relationship indicating the rate of desired consumer spending at various income levels

Question 14

what does the consumption function tell us?

Answer 14

• how much consumption will be included in aggregate demand at the prevailing price level.
• how much consumption component of AD will change (shift) when incomes change

Question 15

dissaving?

Answer 15

when current consumption is greeter than current income, meaning your dipping into savings

Question 16

investment?

Answer 16

spending on new plants, equipment, and structures (capital) in a given time period

Question 17

full employment GDP?

Answer 17

value of total output (real GDP) produced when we are at full employment

Question 18

equilibrium GDP?

Answer 18

value of total output (real GD) produced at macro equilibrium

Question 19

recessionary GDP gap

Answer 19

amount by which equilibrium GDP falls short of full-employment GDP

Question 20

inflationary GDP gap

Answer 20

amount by which equilibrium GDP exceeds full employment GDP

Question 21

cyclical unemployment?

Answer 21

unemployment due to lack of job opportunities

Question 22

demand pull inflation?

Answer 22

increase in prices caused by excessive aggregate demand

Question 23

business cycle

Answer 23

alternating periods of growth and contraction

Question 24

expenditure equilibrium?

Answer 24

rate of output at which desired spending equals the value of output

Question 25

what are some non-income things that determine consumption?

Answer 25

expectations, wealth effect, credit, and taxes

Question 26

Aggregate demand curve will shift in response to what?

Answer 26

income, expectations, wealth, credit expectations, and tax policy

Question 27

A downward shift of the consumption function implies what?

Answer 27

leftward shift of the aggregate demand curve to attempt to reach equilibrium

Question 28

an upward shift of the consumption function implies what?

Answer 28

an increase (right shift) in aggregate demand

Question 29

what determines investment aggregate demand?

Answer 29

expectations, interest rates, technology and innovation

Question 30

why are interest rates affecting investment and spending?

Answer 30

lower rate of investment and consumer spending when interest rates are high, and more when they are lower ceteris paribus

Question 31

when does Macro failure occur?

Answer 31

when the economy fails to achieve full employment and price stability

Question 32

when does the consumption function shift up or down?

Answer 32

when autonomous influences like wealth and expectations change

Question 33

When does the AD curve shift left or right?

Answer 33

when the consumption function shifts up or down because it is trying to reach equilibrium