Macroeconomics Test #3

National Income

the total value of all income in a nation during a given period

Expenditures Approach

C + I + G + X = GDP

Income Approach

National income + Net foreign factor income + statistical discrepancy + consumption of fixed capital = GDP

Personal Consumption (C)

all expenditures by households on durable consumer, nondurable consumer goods, and consumer expeditures for services

Gross Private Domestic Investment (I)

all final purchases of machinery, equipment, and tools by business enterprises; all constructions; changes in inventories

Government Purchases (G)

expenditures for goods and services that the government consumes in providing public services, and expenditures for social capital such as schools and highways

Net Exports (X)

exports minus imports

disposable income

income that is available to you for saving or spending

expected rate of return

the anticipated increase in profit obtained by investing in capital

aggregate expenditures schedule

assumes constant price meaning it does not change when real GDP changes

Equilibrium GDP

where real GDP (Disposable Income) equals aggregate expenditures

Aggregate Demand

the amount of real domestic output (real GDP)

Aggregate Supply

the level of real domestic output (real GDP) at each possible price

Determinants of Aggregate supply

changes in input prices; changes in productivity; and changes in the legal-institutional environment

Change in input prices (AS)

domestic resource prices, prices of imported resources, market power

Change in productivity (AS)

can cause changes in per-unit production cost

if productivity rises (AS)

unit production will fall, which can shift aggregate supply to the right and lower prices

if productivity lowers (AS)

unit production will rise, which can shift aggregate supply to the left and ris prices

change in legal-institutional environment (AS)

business taxes and or subsides, government regulation

determinants of aggregate demand

changes in C, I, G, and X

changes in consumer spending (AD)

consumer wealth, consumer expectations, household debt, taxes

changes in investment spending (AD)

interest rates, expected returns: future business conditions, tech, degree of excess capacity, business taxes.

changes in export spending unrelated to price level (AD)

national income abroad, exchange rates

elastic demand

over 1, or one increasing and the other decreasing

inelastic demand

under 1, and both increasing or both decreasing

unit elasticity

equal to 1, when TR stays the same

total revenue

price times quantity

recessionary expenditure gap

it exists when equilibrium is below full employment GDP

inflationary expenditure gap

it exists when aggregate expenditures exceed full employment GDP

long-run aggregate supply curve

straigt

short-run aggregate supply curve

gradual ras

increase of aggregate demand

causes demand

demand pull inflation

when there is an increase in aggregate demand, and the supply remains the same or decreases

decrease of aggregate demand

causes cyclical unempl

price of elasticity of supply in the short run vs. the long run

supply is normally more elastic in the long run than in the short run for produced goods

productivity

total output / total input

per unit production cost

total input cost / total output

productive efficiency

occurs when a business focuses on producing a good at the lowest possible cost

allocative efficiency

looks to optimize how the goods are distributed

price-elasticity coefficient and formula

(ΔQ/(1/2(sum of Q)))/(ΔP/(1/2(sum of P)))

perfectl

when the demand for the product is entirely dependent on the price of the product

perfectly inelastic demand

a change in the price of a product or a service has no impact on the quantity demanded or supplied because the elasticity of demand or supply is equal to zero

leakage

anything that takes away from the money pool: taxes, or savings as it is a leakage to consumption

increase in aggregate demand

moves to the right

decrease in aggregate demand

moves to the left

increase in aggregate supply

moves to the right

decrease in aggregate supply

moves to the left