Macroeconomics Review Flashcards

Flashcards covering key economic concepts from the lecture notes.

Consumption

Spending on consumer goods and services over a period of time.

Durable Goods

Goods that are consumed over a long period of time (e.g., a car).

Non-Durable Goods

Goods that are consumed almost immediately.

Saving

What is not spent out of income.

Disposable Income

Income after any taxes have been deducted.

Consumption Function

Shows the relationship between consumption of households and the factors that determine it.

Marginal Propensity to Consume (MPC)

The change in consumption resulting from a change in income (MPC = change in consumption / change in income).

Average Propensity to Consume (APC)

The average amount spent on consumption out of total income (APC = consumption / income).

Keynesian Theory of Consumption

The theory that income is the most important determinant of consumption.

Wealth Effect

The increase in consumption that occurs when the value of assets (physical or monetary wealth) increases.

Savings Function

Links income, wealth, inflation, interest rate, expectations, and the age profile of the population with the level of saving.

Average Propensity to Save (APS)

Savings divided by income (savings/income).

Marginal Propensity to Save (MPS)

The change in savings resulting from a change in income (change in savings/change in income).

Savings Ratio

The proportion of income that is saved, expressed as a percentage of total household income.

Dissaving

When spending is greater than income (a negative savings ratio).

Investment

The addition to the capital stock of the economy (factories, machines, stocks, materials used to produce other goods and services).

Gross Investment

Investment measured before depreciation.

Net Investment

Gross investment minus the value of depreciation.

Depreciation

The decrease in value of capital stock as it wears out and is used up over time.

Accelerator Theory

The idea that investment is linked to changes in output or income in the economy.

Capital Output Ratio

The amount of capital needed in the economy to produce a given quantity of goods.

Animal Spirits

A phrase used to describe the mood of managers and owners regarding business expectations and confidence.

Fiscal Policy

Involves decisions about government spending, taxes, and borrowing.

Budget Deficit

When government spending is more than tax revenue.

Budget Surplus

When government spending is less than tax revenue.

Exports

Goods and services sold to foreign countries.

Imports

Goods and services bought from foreign countries.

Net Exports

Exports minus imports.

Exchange Rate

The price of one currency in terms of another.