Macroeconomic Notes Review

A collection of vocabulary flashcards covering key macroeconomic concepts.

Consumption Function

The relationship between consumption and income.

Marginal Propensity to Consume (MPC)

The fraction of a change in income that is spent on consumption; the change in consumption divided by the change in income.

Saving Function

The relationship between saving and income.

Marginal Propensity to Save (MPS)

The fraction of a change in income that is saved.

Life-Cycle Model of Consumption and Saving

Describes how individuals borrow when young, save during middle age, and draw down savings in old age.

Investment Function

The relationship between the amount businesses plan to invest and the economy’s income.

Autonomous Investment

Investment that is independent of income.

Government Purchase Function

The relationship between government purchases and the economy’s income.

Net Exports

The relationship between net exports and the economy’s income.

Aggregate Supply

The relationship between the economy’s price level and the amount of output firms are willing and able to supply.

Nominal Wages

Wages measured in dollars of the year in question.

Real Wage

Wages measured in terms of the quantity of goods and services it can buy.

Potential Output

The economy’s maximum sustainable output given resources and technology.

Natural Rate of Unemployment

The unemployment rate when the economy produces at its potential output.

Short Run

A period in macroeconomics when some resource prices remain fixed.

Short-Run Aggregate Supply (SRAS) Curve

A curve showing a direct relationship between the actual price level and real GDP supplied in the short run.

Short-Run Equilibrium

The price level and real GDP that occurs when aggregate demand intersects the short-run aggregate supply curve.

Expansionary Gap

The amount by which actual output exceeds the economy’s potential output in the short run.

Long Run

A period in macroeconomics during which wage contracts and resource price agreements can be renegotiated.

Long-Run Aggregate Supply (LRAS) Curve

A vertical line representing aggregate supply at the economy’s potential output.

Supply Shocks

Unexpected events that affect aggregate supply.

Hysteresis

The theory that the natural rate of unemployment is influenced by the history of unemployment rates.

Automatic Stabilizers

Features of government spending and taxation that reduce fluctuations in disposable income over the business cycle.

Discretionary Fiscal Policy

Deliberate changes in government purchases and taxation to influence macroeconomic goals.

Simple Tax Multiplier

The ratio of change in real GDP demanded to the initial change in autonomous net taxes.

Expansionary Fiscal Policy

Increases in government purchases or decreases in net taxes aimed at boosting aggregate demand.

Contractionary Fiscal Policy

Decreases in government purchases or increases in net taxes aimed at reducing aggregate demand.

Classical Economists

Economists who believed economic downturns are self-correcting through market forces.

Keynesian Economics

Economic theory advocating for government intervention to ensure full employment and price stability.

TARP (Trouble Asset Relief Program)

A program to stabilize the banking system during the 2008 financial crisis.

Federal Reserve System

The central bank and monetary authority of the United States.

Reserve Requirements

The minimum reserves each bank must hold against deposits.

Subprime Mortgages

High-risk loans made to borrowers with poor credit histories.

Fiat Money

Currency that has no intrinsic value and is not backed by physical commodities.

Money Market Mutual Fund

A fund that invests in short-term, high-quality investments and pays competitive interest rates.

Gresham's Law

The theory that bad money drives out good money.