Ch-3 Determination of Income and Employment : Macro Economics

Full employment

________ is a situation when all those who are able and willing to work at prevailing wage rate, get the opportunity to work.

AD1

________ is the desired Aggregate Demand for reaching equilibrium.

Central Bank

Open Market Operations: During Inflation, the ________ will sell securities to the public and get money.

Iii

(________) Warning and direct action: The central bank may warn or take direct action against the commercial banks, which do not follow its guide lines.

C +

In two sector economy AD= ________ I Aggregate Supply is the money value of all final goods and services available for purchase by an economy during a given period.

Iv

(________) Reduce public borrowing: During deflation, Government will reduce borrowing from the public.

Marginal Propensity

________ to Consume (MPC): ________ to consume refers to the ratio of change in consumption expenditure to change in income.

Multiplier

________ also depends on the marginal propensity to save There is inverse relationship between ________ and MPS.

Ii

(________) Rationing credit: Sometimes the central bank will instruct the commercial bank to give some percent of loan to some sectors.

Aggregate supply

________ represents the national income of the country.

Inflationary Gap

________ leads to increase in prices.

Consumption

________ is less than national income.

Voluntary unemployment

________ is a situation where person is able to work but not willing to work at prevailing wage rate.

Involuntary unemployment

________ is a situation where worker is able and willing to work at prevailing wage rate but does not get work.

S

________= f (y) Equation of Saving function where ________= saving Y= National Income f= Functional relationship.

MPS

________ varies between 0 and 1 (i) ________= 1 if the entire additional income is saved.

Repo Rate

________: Commercial Banks may take loans to meet their short- term credit needs from the Central Bank.

multiplier depends

The value of ________ on the value of marginal propensity to consume (MPC)

Deflationary gap

________ is the gap by which actual aggregate demand is less than the level of aggregate demand required to establish full employment.

Deficient Demand

________: When AD falls short of AS at full employment it is called ________.

Investment multiplier

________ (K) is the ratio of change in income (ΔY) due to change in investment ΔI.

line AD1

The ________ and AD2 correspond to the values of A, via A1 and A2 respectively AS is the 45° line is equal to one The 45° line represents point at which AD and output are equal.

Central Bank

(Iv) Open Market Operations: During deflationary Gap, the ________ will buy back securities from the public and give them money.

Ii

(________) Reduction in Taxes: During deflation, the Government will reduce taxes.

Marginal Propensity

________ to Save (MPS): ________ to save refers to the ratio of change in savings to change in total income.

Repo Rate

(Ii) ________: Commercial Banks may take loans to meet their short- term credit needs from the Central Bank.

Inflationary gap

________ is the gap by which actual aggregate demand exceeds the level of aggregate demand required to establish full employment.

Ii

(________) Rationing credit: Sometimes the central bank will instruct the commercial bank to give some percent of loan to some sectors.